10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10 - Q

ý           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

¨           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________

Commission File Number 0-11365

PHOTOMEDEX, INC.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization) 59-2058100 (I.R.S.  Employer Identification No.)

147 Keystone Drive, Montgomeryville, Pennsylvania 18936

(Address of principal executive offices, including zip code)

(215) 619-3600

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes ý  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨                                                           Accelerated filer ¨

Non-accelerated filer ¨                                                           Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ¨  No ý

The number of shares outstanding of the issuer's common stock as of August 14, 2012 was 21,881,182 shares.

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PHOTOMEDEX, INC.

INDEX TO FORM 10-Q

Part I. Financial Information:			PAGE
	ITEM 1.  Financial Statements:
	a.	Condensed Consolidated Balance Sheets June 30, 2012 (unaudited) and December 31, 2011	3
	b.	Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2012 and 2011 (unaudited)	4
	c.	Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2012 and 2011 (unaudited)	5
	d.	Condensed Consolidated Statement of Changes in Equity for the six months ended June 30, 2012 (unaudited)	6
	e.	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)	7
	f.	Notes to Condensed Consolidated Financial Statements (unaudited)	8
	ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk		35
	ITEM 4.  Controls and Procedures		36
Part II. Other Information:
	ITEM 1.  Legal Proceedings		36
	ITEM 1A.  Risk Factors		37
	ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds		37
	ITEM 3.  Defaults Upon Senior Securities		37
	ITEM 4.  (Removed and Reserved)		37
	ITEM 5.   Other Information		37
	ITEM 6.  Exhibits		37
		Signatures	41
		Certifications	E-31.1

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PART I – Financial Information

ITEM 1. Financial Statements

PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	52,886		$	16,549
Accounts receivable, net of allowance for doubtful accounts of $4,664 and $3,196, respectively		23,933			12,393
Inventories, net		21,113			19,208
Deferred tax asset		10,103			10,079
Prepaid expenses and other current assets		11,774			3,611
Total current assets		119,809			61,840
Property and equipment, net		5,344			5,324
Patents and licensed technologies, net		13,513			14,435
Other intangible assets		11,350			11,950
Goodwill, net		26,704			26,704
Deferred tax asset		25,966			24,751
Funds in respect of employee rights upon retirement and other assets		739			559
Total assets	$	203,425		$	145,563
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable	$	101		$	504
Current portion of long-term debt		24			1,720
Accounts payable		11,494			8,111
Accrued compensation and related expenses		2,862			3,800
Other accrued liabilities		19,909			14,989
Deferred revenues		3,602			1,948
Total current liabilities		37,992			31,072
Long-term liabilities:
Long-term debt, net of current maturities		-			8
Deferred revenues		2,532			1,381
Other liabilities		326			504
Liability for employee rights upon retirement		583			520
Total liabilities		41,433			33,485
Stockholders’ equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2012 and December 31, 2011		-			-
Common stock, $.01 par value, 50,000,000 shares authorized; 21,881,182 and 18,821,728 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively		219			188
Treasury stock at cost, 16,056 shares of common stock		(250	)		(250	)
Additional paid-in capital		140,233			99,325
Retained earnings		21,883			12,813
Accumulated other comprehensive income (loss)		(93	)		2
Total stockholders’ equity		161,992			112,078
Total liabilities and stockholders’ equity	$	203,425		$	145,563

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	For the Three Months Ended June 30,
	2012			2011
Revenues	$	58,906		$	33,847
Cost of revenues		12,355			5,690
Gross profit		46,551			28,157
Operating expenses:
Engineering and product development		760			249
Selling and marketing		31,068			15,390
General and administrative		9,243			28,926
		41,071			44,565
Operating profit (loss)		5,480			(16,408	)
Other income (loss):
Interest and  other financing income (expense), net		(401	)		161
Income (loss) before income tax (expense) benefit		5,079			(16,247	)
Income tax (expense) benefit		(866	)		6,202
Net income (loss)	$	4,213		$	(10,045	)
Net income (loss) per share:
Basic	$	0.20		$	(0.98	)
Diluted	$	0.20		$	(0.98	)
Shares used in computing net income (loss) per share:
Basic		20,547,244			10,256,364
Diluted		21,034,814			10,256,364
Other comprehensive loss:
Foreign currency translation adjustments		(90	)		-
Comprehensive income (loss)	$	4,123		$	(10,045	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	For the Six Months Ended June 30,
	2012			2011
Revenues	$	109,179		$	68,588
Cost of revenues		23,589			11,912
Gross profit		85,590			56,676
Operating expenses:
Engineering and product development		1,518			419
Selling and marketing		56,903			30,037
General and administrative		16,362			31,739
		74,783			62,195
Operating profit (loss)		10,807			(5,519	)
Other income (loss):
Interest and  other financing income (expense), net		(631	)		192
Income (loss) before income tax (expense) benefit		10,176			(5,327	)
Income tax (expense) benefit		(1,106	)		3,367
Net income (loss)	$	9,070		$	(1,960	)
Net income per share:
Basic	$	0.47		$	(0.19	)
Diluted	$	0.45		$	(0.19	)
Shares used in computing net income per share:
Basic		19,454,775			10,256,364
Diluted		19,942,345			10,256,364
Other comprehensive loss:
Foreign currency translation adjustments		(95	)		-
Comprehensive income (loss)	$	8,975		$	(1,960	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(In thousands, except share and per share amounts)

(Unaudited)

	Common Stock		Additional Paid-In	Treasury	Retained	Accumulated Other Comprehensive
	Shares	Amount	Capital	Stock	Earnings	Income	Total
BALANCE, JANUARY 1, 2012	18,821,728	$188	$99,325	($250)	$12,813	$2	$112,078
Issuance of warrants to consultants for services	-	-	98	-	-	-	98
Stock-based compensation – grants of common stock	30,000	-	405	-	-	-	405
Stock-based compensation related to stock options and restricted stock	-	-	2,800	-	-	-	2,800
Stock options issued to consultants for services	-	-	83	-	-	-	83
Issuance of common stock, net	3,023,432	30	37,484				37,514
Options exercised	6,022	1	38	-	-	-	39
Other comprehensive income (loss)	-	-	-	-	-	(95)	(95)
Net income for the six months ended June 30, 2012		-	-	-	9,070	-	9,070
BALANCE, JUNE 30, 2012	21,881,182	$219	$140,233	($250)	$21,883	($93)	$161,992

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share amounts)

(Unaudited)

	For the Six Months Ended June 30,
	2012			2011
Cash Flows From Operating Activities:
Net income (loss)	$	9,070		$	( 1,960	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,771			184
Provision for doubtful accounts		2,091			1,808
Deferred income taxes		(1,234	)		(6,105	)
Stock-based compensation		3,288			14,836
Changes in operating assets and liabilities:
Accounts receivable		(13,655	)		(10,594	)
Inventories		(1,923	)		(743	)
Prepaid expenses and other assets		(8,139	)		643
Accounts payable		3,390			(240	)
Accrued compensation and related expenses		(938	)		(840	)
Other accrued liabilities (see Note 8)		4,756			16,697
Other liabilities		63			36
Deferred revenues		2,805			885
Net cash provided by operating activities		2,345			14,607
Cash Flows From Investing Activities:
Purchases of property and equipment		(218	)		(93	)
Lasers placed in service		(949	)		-
Proceeds from deposit		-			8,500
Amounts carried to patents		-			(35	)
Increase in funds – employees retirement rights		(63	)		(37	)
Net cash (used in) provided by investing activities		(1,230	)		8,335
Cash Flows From Financing Activities:
Payments on notes payable		(349	)		-
Repayments of long term debt		(2,000	)		-
Issuance of warrants		98			-
Proceeds from issuance of common stock, net		37,514			-
Proceeds from option exercises		39			-
Net cash provided by financing activities		35,302			-
Effect of exchange rate changes on cash		(80	)		-
Net increase in cash and cash equivalents		36,337			22,942
Cash and cash equivalents, beginning of period		16,549			7,581
Cash and cash equivalents, end of period	$	52,886		$	30,523
Supplemental information:
Cash paid for income taxes	$	10,922		$	5,315
Cash paid for interest	$	77		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PHOTOMEDEX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share amounts

Note 1

The Company:

Background

PhotoMedex, Inc. (and its subsidiaries) (the “Company”) is a Global Skin Health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. The Company provides proprietary products and services that address skin diseases and conditions including psoriasis, vitiligo, acne, actinic keratosis (a precursor to certain types of skin cancer) and photo damage.

On December 13, 2011, the Company closed the merger with Radiancy, Inc. As of December 13, 2011, immediately after giving effect to the acquisition and the issuance of PhotoMedex, Inc.’s common stock to the former shareholders of Radiancy, Inc., the Company had 18,820,852 shares of common stock issued and outstanding. Immediately following the reverse merger, the pre-reverse merger shareholders of PhotoMedex, Inc. (“Pre-merged PhotoMedex”) collectively owned approximately 20% of the Company’s outstanding common stock, and the former Radiancy, Inc. stockholders owning approximately 80% of the Company’s outstanding common stock.

The merger was accounted for as a reverse acquisition with Radiancy treated for accounting purposes as the acquirer. As such, the financial statements of Radiancy, Inc. are treated as the historical financial statements of the Company, with the results of Pre-merged PhotoMedex, Inc. being included from December 14, 2011 and thereafter. For periods prior to the closing of the reverse acquisition, therefore, our discussion below relates to the historical business and operations of Radiancy, Inc.

As a result of the acquisition, the Company implemented a revised business plan focused on three key components – skilled direct sales force to target Physician and Professional Segments; expertise in global consumer marketing; and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept through regulatory, physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product-life-cycle evolution. The Company reorganized its business into three operating units to better align its organization based upon the Company’s management structure, products and services offered, markets served and types of customers.

Based upon this strategic focus, effective December 13, 2011, management updated the segments that the Company now currently operates. There are now three distinct business units or segments (as described in Note 13): Consumer, Physician Recurring and Professional. The segments are distinguished by the Company’s management structure and the markets or customers served.

The Consumer segment, the Company’s largest business unit, generates revenues by bringing professional technologies into the home-use arena, through the no!no!® product line. The Physician Recurring segment generates revenues from two product lines: (A) the XTRAC®, a noninvasive, FDA-cleared solution for psoriasis and vitiligo, and (B) NEOVA®, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. The Professional segment generates revenues from capital equipment, such as the XTRAC lasers, LHE® brand products and the Omnilux® and Lumière Light Therapy systems.

Basis of Presentation:

The accompanying condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (“fiscal 2011”). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company’s financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature. Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.

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The results for the three months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012 or for any other interim period or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements include the results from the entities defined as Pre-merged PhotoMedex from December 14, 2011 (the day following the closing date of the reverse acquisition) forward. As such there are no corresponding activities for the three and six months ended June 30, 2011.

Revenue Recognition

The Company recognizes revenues from product sales when the following four criteria have been met: (i) the product has been delivered and the Company has no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is reasonably assured. Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.

The Company ships most of its products FOB shipping point, although from time to time certain customers, for example governmental customers, will insist upon FOB destination. Among the factors the Company takes into account when determining the proper time at which to recognize revenue are when title to the goods transfers and when the risk of loss transfers. Shipments to distributors or physicians that do not fully satisfy the collection criteria are recognized when invoiced amounts are fully paid or fully assured.

For revenue arrangements with multiple deliverables within a single, contractually binding arrangement (usually sales of products with separately priced extended warranty), each element of the contract is accounted for as a separate unit of accounting when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.

With respect to sales arrangements under which the buyer has a right to return the related product, revenue is recognized only if all the following are met: the price is fixed or determinable at the date of sale; the buyer has paid, or is obligated to pay and the obligation is not contingent on resale of the product; the buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product; the buyer has economic substance; the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and the amount of future returns can be reasonably estimated.

The Company provides a provision for product returns based on the experience with historical sales returns, in accordance with ASC Topic 605-15 with respect to sales of product when a right of return exists. Reported revenues are shown net of the returns provision. Such allowance for sales returns is included in Other Accrued Liabilities. (See Note 8).

Deferred revenue includes amounts received with respect to extended warranty maintenance, repairs and other billable services and amounts not yet recognized as revenues. Revenues with respect to such activities are recognized over the duration of the warranty period, the service period or when service is provided, as applicable to each service.

The Company has two distribution channels for its phototherapy treatment equipment. The Company either (i) sells its lasers through a distributor or directly to a physician or (ii) places its lasers in a physician’s office (at no charge to the physician) and generally charges the physician a fee for an agreed upon number of treatments. In some cases, the Company and the customer stipulate to a quarterly or other periodic target of procedures to be performed, and accordingly revenue is recognized ratably over the period.

When the Company places a laser in a physician’s office, it generally recognizes service revenue based on the number of patient treatments performed, or purchased under a periodic commitment, by the physician. Treatments to be performed through random laser-access codes that are sold to physicians free of a periodic commitment, but not yet used, are deferred and recognized as a liability until the physician performs the treatment. Unused treatments remain an obligation of the Company because the treatments can only be performed on Company-owned equipment. Once the treatments are delivered to a patient, this obligation has been satisfied.

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The Company defers substantially all sales of treatment codes ordered by and delivered to its customers within the last two weeks of the period in determining the amount of procedures performed by its physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period.

Revenue from maintenance service agreements is deferred and recognized on a straight-line basis over the term of the agreements. Revenue from billable services, including repair activity, is recognized when the service is provided.

Fair Value Measurements

The Company measures and discloses fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 – unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. The fair values of notes payable and long-term debt are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity. The estimated fair values of notes payable and long-term debt approximate the carrying values. The fair value of the amounts funded in insurance policies in respect of employee liability for employee rights upon retirement is usually identical or close to their carrying value. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.

Accrued Warranty Costs

The Company offers a standard warranty on product sales generally for a one to two-year period. In the case of domestic sales of XTRAC lasers, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated future warranty claims on the date the product is sold. Total accrued warranty is included in Other Accrued Liabilities on the balance sheet. The activity in the warranty accrual during the six months ended June 30, 2012 and 2011 is summarized as follows:

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	June 30,
	2012			2011
	(unaudited)			(unaudited)
Accrual at beginning of year	$	1,661		$	260
Additions charged to warranty expense		919			202
Expiring warranties		(218	)		(-	)
Claims satisfied		(658	)		(128	)
Total		1,704			334
Less: current portion		(1,378	)		(334	)
Accrued warranty	$	326		$	-

For extended warranty on the consumer products, see Revenue Recognition above.

Earnings Per Share

Due to the reverse merger on December 13, 2011, the earnings per share for each period before the acquisition date presented in these financial statements were computed based on Radiancy’s historical weighted-average number of shares outstanding, multiplied by the exchange ratio that was established in the reverse merger. Therefore, unless otherwise noted, all share and per-share amounts for all periods before the acquisition date have been retroactively adjusted to give effect to the exchange ratio.

Basic and diluted earnings per common share were calculated using the following weighted-average shares outstanding:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding		20,547,244		10,256,364		19,454,775		10,256,364
Dilutive effect of stock options and warrants		487,570		-		487,570		-
Diluted number of common and common stock equivalent shares outstanding		21,034,814		10,256,364		19,942,345		10,256,364

Diluted earnings per share for the three and six months ended June 30, 2012, exclude the impact of common stock options and warrants, totaling 1,975,530 shares, as the effect of their inclusion would be anti-dilutive.

Adoption of New Accounting Standards

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-04, which amends Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures. This ASU clarifies among other things, the FASB’s intent with respect to the application of existing fair value requirements, including those related to highest and best use concepts, and also expands the disclosure requirements for fair value measurements categorized within Level 3 of the fair value hierarchy. This ASU clarifies that a reporting entity should disclose quantitative information about significant unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. Additionally, this ASU expands the disclosures for fair value measurements categorized within Level 3 where a reporting entity is required to include a description of the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. Additional disclosure is also required for any transfers between Level 1 and Level 2 of the fair value hierarchy of fair value measurements on a gross basis as well as additional disclosure of the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value. For many of the requirements, the FASB does not intend for this ASU to result in a change in the application of the requirements in FASB ASC Topic 820. This update became effective during interim and annual periods beginning after December 15, 2011. 

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In June 2011, the FASB issued ASU No. 2011-05, which amends FASB ASC Topic 220, Comprehensive Income. This ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update became effective during interim and annual periods beginning after December 15, 2011. 

In September 2011, the FASB issued ASU No. 2011-08, which amends FASB ASC Topic 350, Intangibles-Goodwill and Other. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This update became effective during interim and annual periods beginning after December 15, 2011. 

Note 2

Reverse Acquisition:

On December 13, 2011, PhotoMedex closed the merger acquisition with Radiancy, Inc. in a transaction that was accounted for as a reverse acquisition, with Radiancy treated as the accounting acquirer. Radiancy was considered the accounting acquirer even though PhotoMedex was the issuer of common stock in the transaction, such that upon completion of the merger, the Company had 18,820,852 shares of common stock issued and outstanding, with the Pre-merged PhotoMedex, Inc. stockholders collectively owning approximately 20%, and the former Radiancy, Inc. stockholders owning approximately 80%, of the outstanding common stock of the Company. The 80%/20% ratio reflects the fact that warrants or options are not treated as equivalent outstanding common stock. As such, the financial statements of Radiancy, Inc. are treated as the historical financial statements of the Company, with the results of the entities defined as Pre-merged PhotoMedex, Inc. included only from December 14, 2011 and thereafter.

The consideration transferred was $83,915, included $1,842 of assumed debt, for the Pre-merged PhotoMedex assets. This amount was determined based on the amount of equity interest (shares, options and warrants) that Radiancy would have had to issue to PhotoMedex shareholders in order to provide as agreed upon in the merger document a 75%/25% ownership ratio on a fully converted basis. Consistent with this formula all warrants and options were treated as equivalent, share for share, with outstanding common stock. The fair value of the consideration effectively transferred by Radiancy was based on the market price of Pre-merged PhotoMedex shares which was $15.60 per-share (closing price) on December 13, 2011, the day on which the reverse acquisition became effective. This consideration transferred also included $20 million in cash, which Pre-merged PhotoMedex, used to liquidate its convertible debt, prior to the acquisition. The fair value of the assets acquired and liabilities assumed were based on management estimates and values derived from an outside independent appraisal. However, as of June 30, 2012, the Company is still in the process of assessing the acquired entity’s tax positions and the amount of net loss carryforwards that are expected to be utilized in future periods based on the facts and circumstances that existed at the acquisition date. Accordingly, the deferred taxes and, therefore, the goodwill allocations might be subject to adjustments upon completion of assessment. The Company expects that the allocation will be finalized within twelve months after the merger as allowed by GAAP. Based on the provisional purchase price allocation, the following table summarizes the estimated provisional fair value amounts of the assets acquired and liabilities assumed at the date of acquisition:

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Cash and cash equivalents	$	1,271
Accounts receivable		1,873
Inventories		7,136
Prepaid expenses and other current assets		639
Property and equipment		4,543
Patents and licensed technologies		13,500
Other intangible assets		12,000
Other assets		41
Deferred tax assets		27,122
Total assets acquired at fair value		68,125
Accounts payable		(6,333	)
Accrued compensation and related expenses		(1,554	)
Other accrued liabilities		(2,471	)
Deferred revenues		(556	)
Total liabilities assumed		(10,914	)
Net assets acquired	$	57,211

The purchase price exceeded the fair value of the net assets acquired by $26,704, which was recorded as goodwill. The consolidated results of operations do not include any revenues or expenses related to the Pre-merged PhotoMedex business on or prior to December 13, 2011, the consummation date of the reverse acquisition. The Company’s unaudited pro-forma results for the three and six months ended June 30, 2012 and 2011 summarize the combined results of the Radiancy and PhotoMedex in the following table, assuming the reverse acquisition had occurred on January 1, 2011 and after giving effect to the reverse acquisition adjustments, including amortization of the tangible and intangible assets which were acquired in the transaction:

	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
	(unaudited)			(unaudited)
Net revenues	$	42,253		$	85,216
Net income		(12,265	)		(5,926	)
Net income per share:
Basic	$	(0.93	)	$	(0.45	)
Diluted	$	(0.93	)	$	(0.45	)
Shares used in calculating net income per share:
Basic		13,135,327			13,139,090
Diluted		13,135,327			13,139,090

These unaudited pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the reverse acquisition occurred on January 1, 2011, nor to be indicative of future results of operations.

- 13 -

Note 3

Inventories:

Set forth below is a detailed listing of inventories:

	June 30, 2012		December 31, 2011
	(unaudited)
Raw materials and work in progress	$	9,249	$	7,105
Finished goods		11,864		12,103
Total inventories	$	21,113	$	19,208

Work-in-process is immaterial, given the Company’s typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.

Note 4

Property and Equipment:

Set forth below is a detailed listing of property and equipment:

	June 30, 2012			December 31, 2011
	(unaudited)
Lasers-in-service	$	5,147		$	4,187
Equipment, computer hardware and software		3,677			3,576
Furniture and fixtures		594			529
Leasehold improvements		387			376
		9,805			8,668
Accumulated depreciation and amortization		(4,461	)		(3,344	)
Property and equipment, net	$	5,344		$	5,324

Depreciation and related amortization expense was $1,155 and $129 for the six months ended June 30, 2012 and 2011, respectively. At June 30, 2012 and December 31, 2011, net property and equipment included $70 and $61, respectively, of assets recorded under capitalized lease arrangements, of which $24 and $30 was included in current portion of long-term debt at June 30, 2012 and December 31, 2011, respectively. See Note 9, Long-Term Debt.

Note 5

Patents and Licensed Technologies, net:

June 30, 2012	December 31, 2011
(unaudited)

	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Patents	$	15,217	$	(1,704	)	$	13,513	$	15,124	$	(689	)	$	14,435

Related amortization expense was $1,015 and $55 for the six months ended June 30, 2012 and 2011, respectively. An amount of $13,500, included in Patents, represents product and core technologies recorded as part of the purchase price allocation done in connection with the reverse acquisition in order to set the Pre-merged PhotoMedex assets to their respective fair values.

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Estimated amortization expense for amortizable patents and licensed technologies assets for the next five years is as follows:

Last six months of 2012	$	1,046
2013		2,035
2014		2,035
2015		2,028
2016		1,980
Thereafter		4,389
Total	$	13,513

Note 6

Goodwill and Other Intangible Assets:

As part of the purchase price allocation for the reverse acquisition, as further discussed in Note 2, the Company recorded goodwill in the amount of $26,704 and definite-lived intangibles in the amount of $12,000. Goodwill reflects the value or premium of the acquisition price in excess of the fair values assigned to specific tangible and intangible assets. Goodwill has an indefinite useful life and therefore is not amortized as an expense, but is reviewed annually for impairment of its fair value to the Company. The purchase price intrinsically recognizes the benefits of the broadened depth of the management team and the addition of a sizeable direct sales force creating greater access to the physician community with branded products and technologies. Furthermore, the purchase price paid by Radiancy, Inc, a private company includes, among other things, other benefits such as the intrinsic value of being a Nasdaq-listed issuer post merger and now having access to capital markets and stockholder liquidity. During 2012, after the completion of the purchase price allocation, the goodwill will be allocated to the current reportable segments.

The Company has no impairment loss as of June 30, 2012.

Set forth below is a detailed listing of other definite-lived intangible assets:

	June 30, 2012							December 31, 2011
	(unaudited)
	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Trademarks	$	5,700	$	(309	)	$	5,391	$	5,700	$	(24	)	$	5,676
Customer Relationships	$	6,300	$	(341	)	$	5,959	$	6,300	$	(26	)	$	6,274
	$	12,000	$	(650	)	$	11,350	$	12,000	$	(50	)	$	11,950

Related amortization expense was $600 and $0 for the periods ended June 30, 2012 and 2011. Customer Relationships embody the value to the Company of relationships that pre-merged PhotoMedex had formed with its customers. Trademarks include the tradenames and various trademarks associated with Pre-merged PhotoMedex products (e.g. “XTRAC”, “Neova” “Omnilux” and “Lumiere”).

Estimated amortization expense for the above amortizable intangible assets for the next five years is as follows:

Last six months of 2012	$	600
2013		1,200
2014		1,200
2015		1,200
2016		1,200
Thereafter		5,950
Total	$	11,350

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Note 7

Accrued Compensation and related expenses:

	June 30, 2012		December 31, 2011
	(unaudited)
Accrued payroll and related taxes	$	901	$	1,260
Accrued vacation		401		251
Accrued commissions and bonus		1,560		2,289
Total accrued compensation and related expense	$	2,862	$	3,800

Note 8

Other Accrued Liabilities:

	June 30, 2012		December 31, 2011
	(unaudited)
Accrued warranty, current	$	1,378	$	1,157
Accrued taxes, including liability for unrecognized tax benefit, see Note 11		2,391		5,101
Accrued sales returns (1)		11,789		6,143
Other accrued liabilities		4,351		2,588
Total other accrued liabilities	$	19,909	$	14,989

(1)   The activity in the sales returns liability account was as follows:

	Six Months Ended June 30,
	2012			2011
	(unaudited)			(unaudited)
Balance at beginning of year	$	6,143		$	3,406
Additions that reduce net sales		22,224			14,843
Deductions from reserves		(16,578	)		(11,305	)
Balance at end of period	$	11,789		$	6,944

Note 9

Long-term Debt:

In the following table is a summary of the Company’s long-term debt, which the Company assumed in the reverse merger on December 13, 2011.

	June 30, 2012			December 31, 2011
	(unaudited)
Term note, net of unamortized debt discount of $0 and $302, respectively	$	-		$	1,698
Capital lease obligations		24			30
Sub-total		24			1,728
Less: current portion		(24	)		(1,720	)
Total long-term debt	$	-		$	8

Term Note

On March 19, 2010, Pre-merged PhotoMedex entered a Term Loan and Security Agreement with Clutterbuck Funds for a principal amount of $2.5 million, with interest accruing at a rate of 12% per annum. On March 28, 2011, Clutterbuck Funds agreed to extend the maturity date of the secured term loan to December 1, 2012. Starting in

- 16 -

August 2011, Pre-merged PhotoMedex began monthly installments of principal such that the final payment at maturity will be $75,000. The collateral securing the first-position security interest of Clutterbuck Funds remained in place. On June 11, 2012, the Company paid off this loan and was relieved of all related obligations.

Capital Leases

The obligation under the Company’s capital lease is at a fixed interest rate and is collateralized by the related property and equipment (see Note 4, Property and Equipment).

The following table summarizes the future minimum payments that the Company expects to make for long-term debt and capital lease obligations:

Six months of 2012	$	15
2013		10
Total minimum payments		25
Less: interest		(1	)
Present value of total minimum obligations	$	24

Note 10

Commitments and Contingencies:

During the six month period ended June 30, 2012, the Company has entered into a settlement agreement with TRIA Beauty, Inc. (“TRIA”). All matters of pending litigation between Radiancy and TRIA have been dismissed with prejudice, including: (i) TRIA Beauty, Inc. v. Radiancy, Inc., Case No. CV-10-5030 (NJV) USDC District of Northern California; and (ii) Radiancy, Inc. v. TRIA Beauty, Inc, Index No. 650025/2011 Supreme Court of the State of New York. The terms of the settlement agreement were reduced to a written agreement dated June 29, 2012; such terms are confidential to the parties. The settlement is deemed to have no material effect on the Company’s consolidated financial statements.

Note 11

Income Taxes:

The Company's effective tax rate is dependent upon the geographic distribution of its earnings or losses (mainly between US and Israel).

The difference between the Company's effective tax rates for three and six month periods ended June 30, 2012 and the U.S. Federal statutory rate (34%) resulted primarily from Pre-merged PhotoMedex current operations which have generated losses, which reduced the overall corporate tax expense and which will have effect on current tax expense when the Company elects to file a U.S. consolidated income tax return. In addition, the Company recorded a receivable for federal taxes paid in 2010 due to the expected carry back of the Company’s 2011 net operating loss for a refund of the 2010 taxes paid by our subsidiary Radiancy, Inc. The receivable is net of alternative minimum tax that is residual to 2010. In addition, the Israeli and UK subsidiaries’ earnings are taxed at rates lower than the federal statutory rate (generally 16% to 26%, respectively).

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and can be ambiguous and the Company is required to make many subjective assumptions and judgments regarding the application of such laws and regulations to its facts and circumstances. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to change over time. Any changes in the Company's subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.

The Company continues to examine the utilization of the loss carryforwards from Pre-merged PhotoMedex and the effect of income taxes on the recording of the reverse acquisition on December 13, 2011.

- 17 -

Note 12

Employee Stock Benefit Plans:

Post-Reverse Merger

Following the closing of the reverse acquisition, the previous Non-Employee Director Stock Option Plan of PhotoMedex (the acquired entity) was adopted by the group. This plan has authorized 120,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 18,951 shares were reserved for outstanding stock options. The directors who were elected to our Board in connection with the reverse merger, each received a one-time stock award of 5,000 shares of the Company’s common stock.

In addition, following the closing of the reverse acquisition, the previous 2005 Equity Compensation Plan (“2005 Equity Plan”) of Pre-merged PhotoMedex (the acquired entity) was also adopted for use by the group. The 2005 Equity Plan has authorized 3,000,000 shares, of which 753,095 shares had been issued or were reserved for issuance as awards of shares of common stock, and 890,170 shares were reserved for outstanding options.

Stock option activity under all of the Company’s share-based compensation plans for the six months ended June 30, 2012 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2012		180,718		$	19.54
Granted		739,000			15.87
Exercised		(6,022	)		6.44
Cancelled		(3,629	)		33.16
Outstanding, June 30, 2012		910,067		$	16.59
Options exercisable at June 30, 2012		182,567		$	19.35

At June 30, 2012, there was $11,637 of total unrecognized compensation cost related to non-vested option grants and stock awards that is expected to be recognized over a weighted-average period of 3.8 years. The intrinsic value of options outstanding and exercisable at June 30, 2012 was not significant.

The Company calculates expected volatility for a share-based grant based on historic daily stock price observations of its common stock. For estimating the expected term of share-based grants made in the six months ended June 30, 2012, the Company has adopted the simplified method. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of expense as of the grant date.

The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of stock options with the following weighted-average assumptions:

	Six Months Ended June 30, 2012
Risk-free interest rate	1.2%
Volatility	85.5%
Expected dividend yield	0%
Expected life	5.5 years
Estimated forfeiture rate	0%

With respect to grants of options, the risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant or award.

On January 26, 2012, the Company issued 30,000 shares of common stock to the six non-employee directors for an aggregate fair value of $405.

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On March 18, 2012, the Company granted an aggregate of 509,000 options to purchase common stock to a number of employees and consultants with a strike price of $14, which was higher than the quoted market value of our stock at the date of grants. The options vest over five years and expire ten years from the date of grant. Also on March 18, 2012, the Company granted an aggregate of 230,000 non-qualified options to purchase common stock to two executive employees with a strike price of $20, which was set to match the exercise price of the warrants issued in the reverse merger and was higher than the quoted market value of our stock at the date of grant. The aggregate fair value of the options granted was$6,652. The options vest over five years and expire ten years from the date of grant.

On December 13, 2011, as part of the reverse merger, the Company issued 380,000 shares of restricted common stock to two executives of Pre-merged PhotoMedex. These restricted shares have a purchase price of $0.01 per share and vest, and cease to be subject to the Company’s right of repurchase, over a three-year period. The Company determined the fair value of the awards to be the fair value of the Company’s common stock on the date of issuance less the value paid for the award.

As part of the reverse acquisition, the Company assumed 164,000 unvested restricted stock awards that were issued on March 30, 2011. Pre-merged PhotoMedex had awarded 200,000 shares of restricted stock to two of its senior executives. The awards were amended on July 4, 2011 and on August 11, 2011 with respect to the vesting provisions such that upon the closing of the reverse merger, each executive would vest in that number of shares that could be vested without causing excise taxes under Sec. 4999 of the Internal Revenue Code to be imposed on the executiveor the loss in any material respect of a deduction under Section 162(m) of the Internal Revenue Code, and any remaining shares would vest in substantially equal monthly installments over a 3-year period, on each month end, so long as the executive continues to be employed by the Company on each such date. If the executive’s employment is terminated by the Company without cause, due to his resignation for good reason, or as the result of his death or disability, the vesting of the shares shall be accelerated. 36,000 of the restricted stock awards were vested as of December 13, 2011, the date of the reverse merger, for the one executive who opted to be so vested.

Out of the total options exercised into shares of common stock during 2011, the Company shall have the right to repurchase 354,791 shares of common stock at a price equal to the par value of such shares ($0.005 per share) in the event of either the resignation or the termination for cause according to the employment agreement of the employees with the Company or its subsidiary. The repurchase right will be subject to the same vesting periods as the option grants themselves. The Company accounted for the replacement of the options with an exercise price of $0.01, with 354,791 restricted shares, with similar vesting terms, as a modification of an award and determined that the fair value of the replaced award equals the new award and therefore no incremental costs should be recorded. As a result, the original stock based compensation of $1,177 continues to be expensed over the original vesting period.

Total stock based compensation expense was $3,288 and $14,836 for the six months ended June 30, 2012 and 2011.

Note 13

Business Segments and Geographic Data:

Effective December 13, 2011, the Company reorganized its business into three operating units to better align its organization based upon the Company’s management structure, products and services offered, markets served and types of customers, as follows: The Consumer segment derives its revenues from the design, development, manufacturing and selling of long-term hair reduction and acne consumer products. The Physician Recurring segment derives its revenues from the XTRAC procedures performed by dermatologists, the sales of skincare products, the sales of surgical disposables and accessories to hospitals and surgery centers and on the repair, maintenance and replacement parts on our various products. The Professional segment, in comparison, generates revenues from the sale of equipment, such as lasers, medical and aesthetic light and heat-based products and LED products. Management reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance.

Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.

- 19 -

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	50,464		$	5,274		$	3,168		$	58,906
Costs of revenues		8,169			2,605			1,581			12,355
Gross profit		42,295			2,669			1,587			46,551
Gross profit %		83.8	%		50.6	%		50.1	%		79.0	%
Allocated operating expenses:
Engineering and product development		240			275			245			760
Selling and marketing expenses		27,544			2,421			1,103			31,068
Unallocated operating expenses		-			-			-			9,243
		27,784			2,696			1,348			41,071
Income (loss) from operations		14,511			(27	)		239			5,480
Interest  and other financing income (expense), net		-			-			-			(401	)
Net income (loss) before taxes	$	14,511		$	( 27	)	$	239		$	5,079

Three Months Ended June 30, 2011

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	32,459		$	-		$	1,388		$	33,847
Costs of revenues		5,206			-			484			5,690
Gross profit		27,253			-			904			28,157
Gross profit %		84.0	%		-	%		65.1	%		83.2	%
Allocated operating expenses:
Engineering and product development		207			-			42			249
Selling and marketing expenses		14,853			-			537			15,390
Unallocated operating expenses		-			-			-			28,926
		15,060			-			579			44,565
Income (loss) from operations		12,193			-			325			(16,408	)
Interest and other financing income (expense), net		-			-			-			161
Net income (loss) before taxes	$	12,193		$	-		$	325		$	(16,247	)

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Six Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	92,665		$	10,347		$	6,167		$	109,179
Costs of revenues		14,941			5,284			3,364			23,589
Gross profit		77,724			5,063			2,803			85,590
Gross profit %		83.9	%		48.9	%		45.4	%		78.4	%
Allocated operating expenses:
Engineering and product development		477			585			456			1,518
Selling and marketing expenses		49,693			4,950			2,260			56,903
Unallocated operating expenses		-			-			-			16,362
		50,170			5,535			2,716			74,783
Income (loss) from operations		27,554			(472	)		87			10,807
Interest  and other financing income (expense), net		-			-			-			(631	)
Net income (loss) before taxes	$	27,554		$	( 472	)	$	87		$	10,176

Six Months Ended June 30, 2011

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	66,086		$	-		$	2,502		$	68,588
Costs of revenues		11,002			-			910			11,912
Gross profit		55,084			-			1,592			56,676
Gross profit %		83.4	%		-	%		63.6	%		82.6	%
Allocated operating expenses:
Engineering and product development		339			-			80			419
Selling and marketing expenses		29,058			-			979			30,037
Unallocated operating expenses		-			-			-			31,739
		29,397			-			1,059			62,195
Income (loss) from operations		25,687			-			533			(5,519	)
Interest and other financing income (expense), net		-			-			-			192
Net income (loss) before taxes	$	25,687		$	-		$	533		$	(5,327	)

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For the three and six months ended June 30, 2012 and 2011, net revenues by geographic area were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
North America 1	$	43,948	$	23,312	$	82,636	$	47,848
Asia Pacific 2		8,466		8,174		13,773		16,812
Europe (including Israel)		6,245		1,685		11,453		2,983
South America		247		676		1,317		945
	$	58,906	$	33,847	$	109,179	$	68,588
1 United States	$	37,470	$	19,980	$	70,093	$	41,936
2  Japan	$	6,847	$	7,510	$	10,174	$	15,556

For the three and six months ended June 30, 2012 and 2011, long-lived assets by geographic area were as follows:

	Three Months Ended June 30,
	2012		2011
North America	$	4,531	$	1
Asia Pacific		-		-
Europe (including Israel)		813		718
South America		-		-
	$	5,344	$	719

The Company discusses segmental details in its Management Discussion and Analysis found elsewhere in this Quarterly Report on Form 10-Q.

Note 14

Significant Customer Concentration:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Customer A		11	%		22	%		8	%		23	%
Customer B		9	%		11	%		7	%		11	%

No other customer was more than 10% of total company revenues for the three and six months ended June 30, 2012 and 2011.

ITEM 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of PhotoMedex, Inc., a Nevada corporation (referred to in this Report as “we,” “us,” “our,” “PhotoMedex,” or “registrant”) and other statements contained in this Report that are not historical facts. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described in Item 1A “Risk Factors” included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations and statements — see “Cautionary Note Regarding Forward-Looking Statements” that appears at the end of this discussion. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.

- 22 -

The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.

Introduction, Outlook and Overview of Business Operations

Our current strategic focus is built upon three key components – skilled direct sales force to target Physician and Professional Segments; expertise in global consumer marketing and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept thru regulatory and physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product life-cycle evolution.

We believe that we are one of only a few aesthetic dermatology companies to have succeeded in taking professional technologies geared toward physicians and med spas and adapting them for the home-use market. Our professional- and consumer-use products are listed below, noting that this is not an exhaustive listing of our product portfolio but represents our current key areas of focus.

Key Technology Platforms

• Thermicon® brand Heat Transfer Technology. In this technique, a patented thermodynamic wire gently singes and burns off the hair above the skin’s surface. It conducts heat pulses, which enable longer-lasting hair removal. This technology drives our home-use no!no! Hair Removal 8800™ device, which is designed to reduce hair growth. Product variations include devices designed for men and for sensitive, small areas such as the face, among other versions.

• LHE® brand Technology. LHE® combines direct heat and a full-spectrum light source to give a greater treatment advantage for psoriasis and acne care, skin tightening, skin rejuvenation, wrinkle reduction, collagen renewal, vascular and pigmented lesion treatments, and hair removal. Using LHE®, the Mistral intelligent phototherapy medical device can treat a larger spot size than a laser with less discomfort. In addition, our research finds that LHE offers meaningful results for thin, light hair. The technology is also used in the no!no! Skin™, a handheld consumer product sold worldwide under the no!no!® brand. The no!no! Skin™ is a 510(k)-cleared product that has been clinically shown to reduce acne by 81% over 24 hours.

• XTRAC® Excimer Laser. XTRAC received FDA clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin conditions for which there are no cures. The machine delivers narrow ultraviolet B (“UVB”) light to affected areas of skin, leading to psoriasis remission in an average of 8 to 12 treatments and of vitiligo after 48 treatments. XTRAC is endorsed by the National Psoriasis Foundation, and its use for psoriasis is covered by nearly all major insurance companies, including Medicare. Nearly 65% of companies now offer reimbursement for vitiligo as well, a figure that is increasing.

• NEOVA®. This line of topical formulations is designed to prevent premature skin aging due to UV-induced DNA damage. The therapy seeks to repair photo-damaged skin using a novel combination of two key ingredients: DNA repair enzymes and our Copper Peptide Complex®. The NEOVA line includes DNA Damage Control SILC SHEER SPF 45, an award-winning tinted sunscreen. The DNA repair enzymes of this sunscreen are clinically shown to reduce UV damage by 45% and increase UV protection by 300% in one hour.

• Light-emitting Diode (LED) Technology. Our LED technology is used in both its Omnilux™ and Lumière™ Light Therapy systems. Omnilux is FDA cleared to treat wrinkles, acne, minor muscle pain and pigmented lesions, and is applicable to all skin types. Lumière is designed for use in non-medical applications and combines the LED light with a line of topical lotions to improve the appearance of fine lines, wrinkles, skin tone and blemishes, giving aesthetic professionals a complete non-invasive skin care solution.

Our revenue generation is categorized as either consumer, physician-recurring or professional. Each segment benefits from the combination of our proprietary global consumer marketing engine with our direct sales force for U.S. physicians.

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Consumer

The global consumer market is our largest business unit due to our success at bringing professional technologies into the home-use arena. Cumulatively, we have sold more than 3.0 million no!no!® products to consumers, the majority of whom have been in Japan and North America.

Even at this level of sales, we believe we have ample opportunity for further expansion, as Japan’s 2010 population was over 127 million people and North America’s was approximately 400 million people—far greater than the more than three million who have already purchased our products.

Our consumer marketing platform is built upon a proprietary direct-to-consumer sales engine and creative marketing programs that drive brand awareness.

Sales Channels

Our multi-channel marketing and distribution model consists of television, online, print and radio direct-response advertising, as well as high-end retailers. We believe that this marketing and distribution model, through which each channel complements and supports the others, provides:

• greater brand awareness across channels;

• cost-effective consumer acquisition and education;

• premium brand building; and

• improved convenience for consumers.

Direct to Consumer. Our direct-to-consumer channel consists of sales generated through infomercials, websites and call centers. We utilize several forms of advertising to drive our direct-to-consumer sales and brand awareness, including print, online, television and radio.

Retailers and Home Shopping Channels. Our retailers and home shopping channels enable us to provide additional points of contact to educate consumers about our solutions, expand our presence beyond our direct to consumer activity and further strengthen and enhance our brand image.

Distributors. In some territories, we operate through exclusive distribution agreements with leading distribution companies that are dominant in their respective market and have the ability to promote our products through their existing retail and home shopping networks.

Markets

North America. Our consumer distribution segment in North America had sales of approximately $38.1 million and $22.7 million for the three months ended June 30, 2012 and 2011, respectively. Our consumer distribution segment in North America had sales of approximately $71.0 million and $46.8 million for the six months ended June 30, 2012 and 2011, respectively. We use a mix of direct-to-consumer advertising that includes infomercials, commercials, catalog and internet-based marketing campaigns, coupled with select retail resellers, such as Neiman Marcus, Henri Bendel, Planet Beauty and others; home shopping channels such as HSN; and online retailers such as Amazon, Dermadoctor.com and Drugstore.com. We believe these channels complement each other, as consumers that have seen our direct-to-consumer advertising may purchase at our retailers, and those who have seen our solutions demonstrated at our retailers may purchase solutions through our websites or call centers.

International (excluding North America). In the international consumer segment, sales were approximately $12.3 million and $9.8 million for the three months ended June 30, 2012 and 2011, respectively. In the international consumer segment, sales were approximately $21.5 million and $19.3 million for the six months ended June 30, 2012 and 2011, respectively. We utilize various sales and marketing methods including sales by direct-to-consumer, sales to retailers and home shopping channels. Our main international markets are Japan, United Kingdom, Argentina and Australia. Our distribution has become geographically diverse over the past year; for example, as revenues have increased, our Japanese distributor, Ya-Man, Ltd., accounted for approximately 11% and 8% of our

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total revenues for the three and six months ended June 30, 2012, compared to 22% and 23% of total revenues for the three and six months ended June 30, 2011.

Physician Recurring

Physician recurring sales entail those generated under two of our product lines: (1) the XTRAC, a noninvasive, FDA-cleared solution for psoriasis and vitiligo, and (2) the NEOVA, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. Both XTRAC® and NEOVA® represent recurring revenue streams with significant market opportunities. In addition, our expertise in direct-to-consumer advertising and innovative marketing programs is anticipated to drive greater brand awareness and adoption for both XTRAC and NEOVA products.

XTRAC®

The XTRAC business is considered a recurring revenue stream given its pay-per-use model, where the machines are provided to professionals who then pay us based on the number of treatments administered with the device.

NEOVA®

Sales of the NEOVA skin care products at present are driven by physicians, who act as spokespersons to their patients in support of the NEOVA line. We have historically marketed to physicians in the dermatology and plastic surgery field, but plan to supplement these efforts with a direct-to-consumer approach to lead patients into those practices. NEOVA addresses a sizeable global market for anti-aging skin care products.

Professional

Sales under the professional business segment are mainly generated from capital equipment, such as our Velocity and VTRAC equipment, our LHE® brand products and our Omnilux and Lumière Light Therapy systems.

This segment is an area of opportunity for us since the reverse acquisition with Radiancy, Inc., or Radiancy, completed on December 13, 2011. We now possess a greatly expanded product offering for the physician community. In addition, following the December 2011 reverse acquisition, we inherited from Pre-merged PhotoMedex a 48-person, experienced direct sales force that already reaches a network of approximately 3,000 physician locations in the U.S. We are now also distributing through this direct sales force the LHE-based professional products in addition to our other equipment to physicians, dermatologists, salons, spas, and other aesthetic practitioners. We view this fully trained sales staff as a significant opportunity.

Sales and Marketing

As of June 30, 2012, our sales and marketing personnel consisted of 64 full-time positions.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates in the three and six months ended June 30, 2012. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011.

Results of Operations (The following financial data, in this narrative, are expressed in thousands, except for the earnings per share.)

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Revenues

The following table presents revenues from our three business segments for the periods indicated below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Consumer	$	50,464	$	32,459	$	92,665	$	66,086
Physician Recurring		5,274		-		10,347		-
Professional		3,168		1,388		6,167		2,502
Total Revenues	$	58,906	$	33,847	$	109,179	$	68,588

We completed the reverse acquisition on December 13, 2011 and as such, our Pre-merged PhotoMedex revenues are included only from the completion date forward. There were no corresponding revenues for the periods ended June 30, 2011.

Consumer Segment

The following table illustrates the key changes in the revenues of the Consumer segment, by sales channel, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Direct-to-consumer	$	33,696	$	19,268	$	65,212	$	39,331
Distributors		7,007		8,346		11,700		17,334
Retailers and home shopping channels		9,761		4,845		15,753		9,421
Total Consumer Revenues	$	50,464	$	32,459	$	92,665	$	66,086

For the three months ended June 30, 2012, consumer products revenues were $50,464 compared to $32,459 in the three months ended June 30, 2011. For the six months ended June 30, 2012, consumer products revenues were $92,665 compared to $66,086 in the six months ended June 30, 2011. The increases of 55.5% and 40.2%, respectively, during the periods were mainly due to the following reasons:

• Direct to Consumer. Revenues for the three months ended June 30, 2012 were $33,696 compared to $19,268 for the same period in 2011. Revenues for the six months ended June 30, 2012 were $65,212 compared to $39,331 for the same period in 2011. The increase of 75% and 66%, respectively, were mainly due to our successful marketing programs which have led to rapid year-over-year revenue growth. Additionally, in May 2011, we launched marketing programs in the United Kingdom (“UK”), resulting in approximately $3,644 and $6,966 in revenues for the three and six months ended June 30, 2012, respectively, compared to $643 for the three and six months ended June 30, 2011.

• Retailers and Home Shopping Channels. Revenues for the three months ended June 30, 2012 were $9,761 compared to $4,845 for the same period in 2011. Revenues for the six months ended June 30, 2012 were $15,753 compared to $9,421 for the same period in 2011. The increases of 101% and 67%, respectively, were also mainly due to our successful marketing programs to the various home shopping channel customers, mainly in the United States (“US”) and the UK.

• Distributors Channels. Revenues for the three months ended June 30, 2012 were $7,007 compared to $8,346 for the same period in 2011. Revenues for the six months ended June 30, 2012 were $11,700 compared to $17,334 for the same period in 2011. The decreases of 16% and 33%, respectively, were mainly attributed to a key partner’s desire to reduce their inventory levels on all product lines carried over from 2011 and into 2012.

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The following table illustrates the key changes in the revenues of the Consumer segment, by markets, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
North America	$	38,141	$	22,668	$	71,138	$	46,751
International		12,323		9,791		21,527		19,335
Total Consumer Revenues	$	50,464	$	32,459	$	92,665	$	66,086

Physician Recurring Segment

The following table illustrates the key changes in the revenues of the Physician Recurring segment for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
XTRAC Treatments	$	1,977	$	-	$	3,656	$	-
Neova skincare		2,135		-		4,300		-
Surgical products		472		-		1,012		-
Other		690		-		1,379		-
Total Physician Recurring Revenues	$	5,274	$	-	$	10,347	$	-

All revenues in this segment are generated through the Pre-merged PhotoMedex products. We completed the reverse acquisition on December 13, 2011. In accordance with generally accepted accounting principles, these revenues are included only from the completion date forward. There were no corresponding revenues for the periods ended June 30, 2011.

XTRAC Treatments

Recognized treatment revenue for the three months ended June 30, 2012 was $1,977. Recognized treatment revenue for the six months ended June 30, 2012 was $3,656. Increases in procedures are dependent upon building market acceptance through marketing programs with our physician partners and their patients to show that the XTRAC procedures will be of clinical benefit and be generally reimbursed.

We have a program to support certain physicians who may be denied reimbursement by private insurance carriers for XTRAC treatments. We recognize service revenue during this program from the sale of XTRAC procedures or equivalent treatments to physicians participating in this program only to the extent the physician has been reimbursed for the treatments. In addition, we defer substantially all sales of treatment codes ordered by and delivered to the customer within the last two weeks of the period in determining the amount of procedures performed by our physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period. For the three and six months ended June 30, 2012, we deferred net revenues of $72 and $217, respectively, under this approach.

NEOVA skincare

For the three and six months ended June 30, 2012, revenues were $2,135 and $4,300, respectively. These revenues are generated from the sale of various skin, hair care and wound products to physicians in both the domestic and international markets.

Surgical products

For the three and six months ended June 30, 2012, revenues were $472 and $1,012, respectively. These revenues are generated from the sale of various related laser fibers and laser disposables in both the domestic and international markets.

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The following table illustrates the key changes in the revenues of the Physicians Recurring segment, by markets, for the periods reflected below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
North America	$	4,602	$	-	$	9,027	$	-
International		672		-		1,320		-
Total Physicians Recurring Revenues	$	5,274	$	-	$	10,347	$	-

Professional Segment

The following table illustrates the key changes in the revenues of the Professional segment for the periods reflected below:

	For the Three Months Ended  June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Dermatology equipment	$	1,294	$	-	$	2,652	$	-
LHE equipment		1,418		1,388		2,409		2,502
Omnilux/Lumiere equipment		336		-		928		-
Surgical lasers		120		-		178		-
Total Professional Revenues	$	3,168	$	1,388	$	6,167	$	2,502

The Dermatology equipment, Omnilux/Lumiere equipment and Surgical lasers revenues in this segment are all generated through the Pre-merged PhotoMedex products. As we completed the reverse acquisition, in accordance with generally accepted accounting principles on December 13, 2011, these revenues are included only from the completion date forward. There were no corresponding revenues for the periods ended June 30, 2011.

Dermatology equipment

For the three months ended June 30, 2012, dermatology equipment revenues were $1,294. Included in this amount were domestic XTRAC laser sales of $326 on 7 lasers sold. For the six months ended June 30, 2012, dermatology equipment revenues were $2,652. Included in this amount were domestic XTRAC laser sales of $794 on 17 lasers sold. We sell the laser directly to the customer for certain reasons, including the costs of logistical support and customer preference as well as a means of addressing under-performing accounts while preserving the vendor-customer relationship. We believe that we are able to reach, at reasonable margins, a sector of the laser market that is better suited to a sale model than a per-procedure, or consignment, model. The international sales of our XTRAC and VTRAC systems were $968 for the three months ended June 30, 2012. We sold 38 systems for the three months ended June 30, 2012, 27 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser. The international sales of our XTRAC and VTRAC systems were $1,858 for the six months ended June 30, 2012. We sold 67 systems for the six months ended June 30, 2012, 44 of which were VTRAC systems, a lamp-based alternative UVB light source that has a wholesale sales price that is below our competitors’ international dermatology equipment and below our XTRAC laser.

LHE® brand products

For the three and six months ended June 30, 2012, LHE® brand products revenues were $1,418 and $2,409, respectively. These revenues are generated from the sale of mainly Mistral™, Kona™, FTD™, SpaTouch Elite™ and accessories. These devices are sold to physicians, spas and beauty salons.

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Omnilux/Lumiere equipment

For the three and six months ended June 30, 2012, Omnilux/Lumiere equipment revenues were $336 and $928, respectively. These revenues are generated from the sale of LED devices. The Omnilux units are sold for medical applications and the Lumière is a sister technology to Omnilux with the same patent protection, but it is designed for use in non-medical applications, especially at salons and spas.

Surgical lasers

Surgical lasers revenues include revenues derived from the sales of surgical laser systems. For the three and six months ended June 30, 2012, surgical laser revenues were $120, representing three laser systems and $178, representing four laser systems, respectively.

The following table illustrates the key changes in the revenues of the Professional segment, by markets, for the periods reflected below:

	For the Three Months Ended  June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
North America	$	870	$	644	$	2,137	$	1,097
International		2298		744		4,030		1,405
Total Professional Revenues	$	3,168	$	1,388	$	6,167	$	2,502

Cost of Revenues: all segments

The following table illustrates cost of revenues from our three business segments for the periods listed below:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Consumer	$	8,169	$	5,206	$	14,941	$	11,002
Physician Recurring		2,605		-		5,284		-
Professional		1,581		484		3,364		910
Total Cost of Revenues	$	12,355	$	5,690	$	23,589	$	11,912

Overall, cost of revenues has increased in all segments due to the related increases in revenues for each of the three segments. As we completed the reverse acquisition on December 13, 2011 the Pre-merged PhotoMedex cost of revenues are included only from the completion date forward. There were no corresponding cost of revenues for the periods ended June 30, 2011.

Gross Profit Analysis

Gross profit increased to $46,551 for the three months ended June 30, 2012 from $28,157 during the same period in 2011. As a percentage of revenues, the gross margin decreased to 79.0% for the three months ended June 30, 2012 from 83.2% for the same period in 2011. Gross profit increased to $85,590 for the six months ended June 30, 2012 from $56,676 during the same period in 2011. As a percentage of revenues, the gross margin decreased to 78.4% for the three months ended June 30, 2012 from 82.6% for the same period in 2011.

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The following table analyzes changes in our gross margin for the periods presented below:

Company Profit Analysis	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	58,906		$	33,847		$	109,179		$	68,588
Percent increase		74.0	%					59.2	%
Cost of revenues		12,355			5,690			23,589			11,912
Percent increase		117.1	%					98.0	%
Gross profit	$	46,551		$	28,157		$	85,590		$	56,676
Gross margin percentage		79.0	%		83.2	%		78.4	%		82.6	%

The primary reasons for the changes in gross profit and the gross margin percentage for the three and six months ended Jun 30, 2012, compared to the same period in 2011, were due to a change in the sales mix. Both the Physician Recurring and Professional segments, which have lower gross margins than the Consumer segment, had increases in revenues over the comparable prior year periods and therefore represent a higher percentage of the sales mix. As a result of purchase accounting rules, the operating results of the pre-merged PhotoMedex, which are mainly attributable to the Physician recurring and Professional segments for the three-month and six-month periods ended June 30, 2011 are not included in the above table for the periods ended June 30, 2011.

The following table analyzes the gross profit for our Consumer segment for the periods presented below:

Consumer Segment	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	50,464		$	32,459		$	92,665		$	66,086
Percent increase		55.5	%					40.2	%
Cost of revenues		8,169			5,206			14,941			11,002
Percent increase		56.9	%					35.8	%
Gross profit	$	42,295		$	27,253		$	77,724		$	55,084
Gross margin percentage		83.8	%		84.0	%		83.9	%		83.3	%

Gross profit for the three months ended June 30, 2012 increased by $15,042 from the comparable period in 2011. Gross profit for the six months ended June 30, 2012 increased by $22,640 from the comparable period in 2011. The key factor for these increases was an increase in revenues as the gross margin percentage is consistent between the comparable periods.

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The following table analyzes the gross profit for our Physician Recurring segment for the periods presented below:

Physician Recurring Segment	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2012			2011		2012			2011
Revenues	$	5,274		$	-	$	10,347		$	-
Percent increase		100	%				100	%
Cost of revenues		2,605			-		5,284			-
Percent increase		100	%				100	%
Gross profit	$	2,669		$	-	$	5,063		$	-
Gross margin percentage		50.6	%		N/A		48.9	%		N/A

All revenues/costs for this segment are generated through the Pre-merged PhotoMedex products. As we completed the reverse acquisition on December 13, 2011, these revenues are included only from the completion date forward. There were no corresponding revenues/costs for the periods ended June 30, 2011.

The following table analyzes the gross profit for our Professional segment for the periods presented below:

Professional Segment	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	3,168		$	1,388		$	6,167		$	2,502
Percent increase		128.2	%					146.5	%
Cost of revenues		1,581			484			3,364			910
Percent increase		226.7	%					269.7	%
Gross profit	$	1,587		$	904		$	2,803		$	1,592
Gross margin percentage		50.1	%		65.1	%		45.4	%		63.6	%

Gross profit for the three months ended June 30, 2012 increased by $683 from the comparable period in 2011. Gross profit for the six months ended June 30, 2012 increased by $1,211 from the comparable period in 2011. The key factor for the increases was the increase in revenues. For the three months ended June 30, 2012, the gross margin percentage was 50.1% compared to 65.1% for the three months ended June 30, 2011. For the six months ended June 30, 2012, the gross margin percentage was 45.4% compared to 63.6% for the six months ended June 30, 2011. The decrease was due to the addition of the Pre-merged PhotoMedex products. The Dermatology equipment, Omnilux/Lumiere equipment and Surgical laser revenues in this segment are all generated through the Pre-merged PhotoMedex products. As we completed the reverse acquisition on December 13, 2011 these revenues/costs are included only from the completion date forward. There were no corresponding revenues/costs for the periods ended June 30, 2011.

Engineering and Product Development

Engineering and product development expenses for the three months ended June 30, 2012 increased to $760 from $249 for the three months ended June 30, 2011. Engineering and product development expenses for the six months ended June 30, 2012 increased to $1,518 from $419 for the six months ended June 30, 2011. $487 and $987, respectively, of the increases is directly related to engineering and product development expenses related to the Pre-merged PhotoMedex products. The reverse merger occurred on December 13, 2011; therefore, only expenses from the completion date forward are included. There were no corresponding engineering and product development expenses related to Pre-merged PhotoMedex, for the periods ended June 30, 2011. The remaining increase was related to the engineering and product development expenses for the development of additional products.

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Selling and Marketing Expenses

For the three months ended June 30, 2012, selling and marketing expenses increased to $31,068 from $15,390 for the three months ended June 30, 2011. For the six months ended June 30, 2012, selling and marketing expenses increased to $56,903 from $30,037 for the six months ended June 30, 2011. These increases were primarily for the following reasons:

• We increased no!no! Hair Removal 8800™ direct to consumer activities in North America and the UK via infomercial, online campaigns, radio and print media, which resulted in an increase in advertising, media buying, and other related selling and marketing expenses. There was a 75% and 66% increase in direct to consumer revenues between the comparable three-month and six-month periods, respectively, which was the result of an increase in the consumer advertising and selling activities (media buying, advertisement, public relations, production of commercials and relevant marketing materials).

• There were increases of approximately $2,749 and $5,728 in costs related to our Pre-merged PhotoMedex expenses for the three and six months ended June 30, 2012, respectively. As we completed the reverse acquisition on December 13, 2011, these expenses were included only from the completion date forward. Consequently, there were no corresponding sales and marketing expenses related to Pre-merged PhotoMedex, for the periods ended June 30, 2011.

General and Administrative Expenses

For the three months ended June 30, 2012, general and administrative expenses decreased to $9,243 from $28,926 for the three months ended June 30, 2011. For the six months ended June 30, 2012, general and administrative expenses decreased to $16,362 from $31,739 for the six months ended June 30, 2011. The decreases were due to the following reasons:

• These decreases were mainly due to a stock based compensation expense of $ 27.1 million including the cash bonus of $12.3 million for the three and six months ended June 30, 2011. On June 30, 2011, the Radiancy board of directors awarded its Chief Executive Officer (i) a stock award of up to 1,017,065 shares of the Radiancy's common stock and (ii) a $12.3 million cash bonus as a "gross-up" for reimbursement of tax payments (tax obligations, withholdings and other tax-related liabilities in connection with the stock bonus and cash award).

• Offsetting the above decreases, in part, were increases of $3,671 and $4,797 in legal expense due to the completion of major litigation.

• There were increases of approximately $2,371 and $5,738 in the three and six months ended June 30, 2012, respectively, in costs related to our Pre-merged PhotoMedex expenses. As we completed the reverse acquisition on December 13, 2011, these expenses were included only from the completion date forward. Consequently, there were no corresponding general and administrative expenses, related to Pre-merged PhotoMedex, for the periods ended June 30, 2011.

Interest and Other Financing Expense, Net

Net interest and other financing expense for the three months ended June 30, 2012 increased to $401, as compared to income of $161 for the three months ended June 30, 2011. The increase of $562 is mainly due to an increase in interest expense of $223. Net interest and other financing expense for the six months ended June 30, 2012 increased to $631, as compared to income of $192 for the six months ended June 30, 2011. The increase of $631 is mainly due to an increase in interest expense of $412. The interest expense related to the term note that was assumed in the reverse merger. There was no corresponding expense in the three and six months ended June 30, 2011. The remaining change was due to currency fluctuation of the U.S. Dollar versus the New Israeli Shekel, the Euro, the GBP and the Australian Dollar. The functional currency of all members of the group is the U.S. Dollar, except for Photo Therapeutics, Ltd, which has a functional currency of GBP.

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Taxes on Income (Loss), Net

For the three months ended June 30, 2012, the net taxes on income amounted to $866 as compared to a benefit of $6,202 for the three months ended June 30, 2011. For the six months ended June 30, 2012, the net taxes on income amounted to $1,106 as compared to a benefit of $3,367 for the six months ended June 30, 2011. These changes were mainly due the net losses for the three and six months ended June 30, 2011. Partially offsetting the tax expense for the six months ended June 30, 2012, was a receivable we recorded, for federal taxes paid in 2010 due to the expected carry back of our 2011 net operating loss from Radiancy, Inc. for a refund of the 2010 taxes paid. The receivable is net of alternative minimum tax that is residual to 2010.

Net Income (Loss)

The factors described above resulted in net income of $4,213 during the three months ended June 30, 2012, as compared to a net loss of $10,045 during the three months ended June 30, 2011, an increase of 141.9%. The factors described above resulted in net income of $9,070 during the six months ended June 30, 2012, as compared to a net loss of $1,960 during the six months ended June 30, 2011, an increase of 562.8%.

Management utilizes certain non-GAAP financial measures to monitor our performance.

We present a computation of non-GAAP adjusted income and non-GAAP adjusted income per share. We define non-GAAP adjusted income as income before depreciation and amortization, income tax expense, stock-based compensation expense, severance costs, interest expense - net, transaction-related expense and major litigation expense. We believe that non-GAAP adjusted income is a meaningful measure which may be used when making period-to-period comparisons. Non-GAAP adjusted income is considered to be a non-GAAP financial measure and should be viewed in conjunction with net income on the Consolidated Statement of Comprehensive Income.

We also present non-GAAP adjusted income per share which is derived by dividing non-GAAP adjusted income by the shares used in computing basic and diluted net income per share. Non-GAAP adjusted income per share is considered to be a non-GAAP financial measure and should be viewed in conjunction with basic and diluted net income per share on the Condensed Consolidated Statement of Comprehensive Income.

There are limitations in using these non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Our reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, nor superior to, GAAP results. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and to provide further information for comparative purposes.

Specifically, management believes the non-GAAP measures provide useful information to both management and investors by isolating certain expenses, gains and losses that may not be indicative of our core operating results and business outlook. In addition, we believe non-GAAP measures enhance the comparability of results against prior periods.

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The following table illustrates the impact of major expenses, in particular depreciation, amortization and stock option expense, between the periods (in thousands, except earnings per share data):

	For the Three Months ended June 30,
	2012		2011			Change
Net income (loss)	$	4,213	$	(10,045	)	$	14,258
Adjustments:
Depreciation and amortization		1,389		92			1,297
Stock-based compensation expense		1,535		14,786			(13,251	)
Completed litigation expense		3,801		118			3,683
Deal-related expenses		-		12,364			(12,364	)
Other investment financing costs		-		-			-
Severance and related costs		166		-			166
Interest expense, net		219		-			219
Income tax expense		866		(6,202	)		7,068
Non-GAAP adjusted income	$	12,189	$	11,113		$	1,076
Shares outstanding at June 30, 2012		21,881		21,881
Non-GAAP adjusted income per share	$	0.56	$	0.51		$	(0.05	)

	For the Six Months ended June 30,
	2012		2011			Change
Net income (loss)	$	9,070	$	(1,960	)	$	11,030
Adjustments:
Depreciation and amortization		2,721		184			2,537
Stock-based compensation expense		3,288		14,836			(11,548	)
Completed litigation expense		5,595		798			4,797
Deal-related expenses		-		12,364			(12,364	)
Other investment financing costs		400		-			400
Severance and related costs		254		-			254
Interest expense, net		408		-			408
Income tax expense		1,106		(3,367	)		4,473
Non-GAAP adjusted income	$	22,842	$	22,855		$	( 13	)
Shares outstanding at June 30, 2012		21,881		21,881
Non-GAAP adjusted income per share	$	1.04	$	1.04		$	0.00

Liquidity and Capital Resources

At June 30, 2012, our current ratio was 3.15 compared to 1.99 at December 31, 2011. As of June 30, 2012 we had $81,817 of working capital compared to $30,768 as of December 31, 2011. Cash and cash equivalents were $52,886 as of June 30, 2012, as compared to $16,549 as of December 31, 2011.

On April 27, 2012, we closed on a two-tranche registered offering in which we sold an aggregate of 3,023,432 shares of its common stock at an offering price of $13.23 per share. The sale resulted in net proceeds of approximately $37.8 million. The net proceeds will be used for general corporate purposes, including capital expenditures, continued product development, sales and marketing initiatives and working capital.

We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations through and beyond the third quarter of 2013.

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Net cash and cash equivalents used in operating activities was $2,346 for the six months ended June 30, 2012 compared to $14,607 for the six months ended June 30, 2011. The decrease was primarily due to increases in accounts receivables, inventory and prepaid assets.

Net cash and cash equivalents used in investing activities was $1,230 for the six months ended June 30, 2012 compared to cash provided by of $8,335 for the six months ended June 30, 2011. This was primarily due to the proceeds from short term deposits of $8,500 for the six months ended June 30, 2011. This was partially offset by an increase in the placement of lasers into service.

When we retire a laser from service that is no longer useable, we write off the net book value of the laser, which is typically negligible. Over the last few years, such retirements of lasers from service have been immaterial.

Net cash and cash equivalents provided by financing activities was $35,302 for the six months ended June 30, 2012 compared to $0 for the six months ended June 30, 2011. In the six months ended June 30, 2012, we had proceeds from issuance of common stock, net of $37,515, which was partially offset by repayments of $2,000 on long-term debt and $351 for certain notes payable.

Commitments and Contingencies

There were no items that significantly impacted our commitments and contingencies as discussed in the notes to our 2011 annual financial statements included in our Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

At June 30, 2012, we had no off-balance sheet arrangements.

Impact of Inflation

We have not operated in a highly inflationary period, and we do not believe that inflation has had a material effect on sales or expenses.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in our Annual Report on Form 10-K for the year ended December 31, 2011, and in this Quarterly Report on Form 10-Q in greater detail under Item 1A. “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk

Foreign Exchange Risk

During the six months ended June 30, 2012, there were no material changes to our market risk disclosures as set forth in Part II Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report on Form 10-K that we filed for the year ended December 31, 2011.

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ITEM 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2012.

Limitations on the Effectiveness of Controls.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our CEO and CFO have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Change in Internal Control and Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, our principal executive and financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our independent registered public accounting firm has not been engaged to express, nor has it expressed, an opinion on the effectiveness of our internal control over financial reporting.

 There was a change in our internal control over financial reporting that occurred during the quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting in current periods. As discussed more fully in Note 2 to our Consolidated Financial Statements, on December 13, 2011, Pre-merged PhotoMedex, a Nevada public company, acquired Radiancy, a privately held company, in a purchase business combination that was accounted for as a reverse acquisition. Because the financial statements and information relating to Radiancy now constitute the financial statements and information of the “Company” and the operations of Pre-merged PhotoMedex were approximately 20% based on consolidated revenues, prior to and subsequent to the business combination compared to those of the post-combination consolidated entity, meaningful evaluation of the effectiveness of internal control over financial reporting as of June 30, 2012 would need to focus on the internal controls of Radiancy. Prior to the transaction, Radiancy was a privately held company, and therefore its controls were not required to be designed or maintained in accordance with Exchange Act Rule 13a-15. The design of public company internal controls over financial reporting for Radiancy and the implementation of internal controls over financial reporting for the post-combination consolidated entities, have required and will continue to require significant time and resources from our management and other personnel.

PART II - Other Information

ITEM 1. Legal Proceedings

Tria Beauty, Inc.

We have entered into a settlement agreement with TRIA Beauty, Inc. (“TRIA”). All matters of pending litigation between Radiancy and TRIA have been dismissed with prejudice, including: (i) TRIA Beauty, Inc. v. Radiancy, Inc., Case No. CV-10-5030 (NJV) USDC District of Northern California; and (ii) Radiancy, Inc. v. TRIA Beauty, Inc, Index No. 650025/2011 Supreme Court of the State of New York. The terms of the settlement agreement were reduced to a written agreement dated June 29, 2012; the terms of the foregoing settlement are confidential to the parties thereto.

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Individual and class action litigations

From time to time, we are also threatened with individual and class action litigations involving our business, products, advertisements, packaging, labeling, consumer claims, contracts, agreements, intellectual property, or FDA matters, licenses and other areas involving us and our business. The outcome or effect on us or our business, the market price of our common stock, cash flows, prospects, revenues, profitability, capital expenditures, reputation, demand for products, results of operations, financial condition, or liquidity of any future litigation cannot be predicted.

Other

We are involved in certain other legal actions and claims arising in the ordinary course of business. We believe, based on discussions with legal counsel, that these other litigations and claims will likely be resolved without a material effect on our consolidated financial position, results of operations or liquidity.

ITEM 1A. Risk Factors

As of June 30, 2012, our risk factors have not changed materially from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. Other Information

FR National Life Lease Renewal

On February 22, 2012, we entered into a renewal of our lease with FR National Life LLC (the “FR National Life Lease”) on our Carlsbad, California facility. The lease renewal is for three years.

The foregoing description of the material terms of the FR National Life Lease does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the FR National Life Lease that is filed as an exhibit to this quarterly report on Form 10-Q for the period ending June 30, 2012.

ITEM 6.  Exhibits

2.1	Amended and Restated Agreement and Plan of Merger, dated as of October 31, 2011, by and among Radiancy, Inc., PhotoMedex, Inc. and PHMD Merger Sub, Inc., including the Form of Warrant. (23)
3.1	Amended and Restated Articles of Incorporation of PhotoMedex, Inc. a Nevada corporation, filed on December 12, 2011 with the Secretary of State for the State of Nevada. (23)
3.2	Bylaws of PhotoMedex, Inc. (a Nevada corporation), adopted December 28, 2010 (18)
4.1	Form of Warrant to Purchase Shares of Common Stock of PhotoMedex (19)
4.2	Term Loan and Security Agreement, dated as of March 19, 2010 between PhotoMedex, Inc. and Clutterbuck Funds LLC (26) (Exhibit 4.12 therein)
4.3	Term Note, dated March 19, 2010, between PhotoMedex, Inc. and Clutterbuck Funds, LLC (26) (Exhibit 4.13 therein)
4.4	Amendment No. 1 to Term Loan and Security Agreement, dated April 30, 2010 (27) (Exhibit 4.20 therein)
4.5	Amendment No. 2 to Term Loan and Security Agreement, dated March 28, 2011 (27) (Exhibit 4.21 therein)

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10.1	Lease Agreement dated May 29, 1996, between Surgical Laser Technologies, Inc. and Nappen & Associates (Montgomeryville, Pennsylvania) (2)
10.2	Lease Renewal Agreement, dated January 18, 2001, between Surgical Laser Technologies, Inc. and Nappen & Associates (2)
10.3	Lease Agreement, dated July 10, 2006, PhotoMedex, Inc. and Nappen & Associates (3)
10.4	Standard Industrial/Commercial Multi-Tenant Lease - Net, dated July 30, 2008 (additional facility at Carlsbad, California) (15)
10.5	Standard Industrial/Commercial Multi-Tenant Lease  Net, dated March 17, 2005 (Carlsbad, California) (5)
10.6	License and Development Agreement, dated May 22, 2002, between Surgical Laser Technologies, Inc. and Reliant Technologies, Inc. (2)
10.7	Settlement Agreement and Release, dated November 11, 2008, by and among Allergan, Inc., Murray A. Johnstone, MD, PhotoMedex, Inc. and ProCyte Corporation. (15)
10.8	Master Asset Purchase Agreement, dated September 7, 2004, between PhotoMedex, Inc. and Stern Laser, srl (6)
10.9	License Agreement, dated March 31, 2006, and effective April 1, 2006, between the Mount Sinai School of Medicine and PhotoMedex, Inc. (7)
10.10	2005 Equity Compensation Plan, approved December 28, 2005 (8)
10.11	Amended and Restated 2000 Non-Employee Director Stock Option Plan (1)
10.12	Amended and Restated 2000 Stock Option Plan (1)
10.13	1996 Stock Option Plan, assumed from ProCyte (9)
10.14	Amended and Restated Employment Agreement with Dennis M. McGrath, dated September 1, 2007 (12)
10.15	Amended and Restated Employment Agreement of Michael R. Stewart, dated September 1, 2007 (12)
10.16	Restricted Stock Purchase Agreement of Dennis M. McGrath, dated January 15, 2006 (5)
10.17	Consulting Agreement dated January 21, 1998 between the Company and R. Rox Anderson, M.D. (4)
10.18	Restricted Stock Purchase Agreement of Dennis M. McGrath, dated May 1, 2007 (10)
10.19	Restricted Stock Purchase Agreement of Michael R. Stewart, dated May 1, 2007 (10)
10.20	Restricted Stock Purchase Agreement of Michael R. Stewart, dated August 13, 2007 (11)
10.21	Amended and Restated 2000 Non-Employee Director Stock Option Plan, dated as of June 26, 2007 (24)
10.22	Amended and Restated 2005 Equity Compensation Plan, dated as of June 26, 2007, as amended on October 28, 2008 (14)
10.23	Form of Indemnification Agreement for directors and executive officers of PhotoMedex, Inc. (13)
10.24	Restricted Stock Purchase Agreement of Dennis M. McGrath, dated June 15, 2009 (16)
10.25	Restricted Stock Purchase Agreement of Michael R. Stewart, dated June 15, 2009 (16)
10.26	Co-Promotion Agreement, dated as of January 7, 2010, between PhotoMedex, Inc and Galderma Laboratories, L.P. (17)
10.27	Amended and Restated 2000 Non-Employee Director Stock Option Plan, dated as of August 3, 2010 (18)
10.28	Amended and Restated 2005 Equity Compensation Plan, dated as of August 3, 2010. (18)
10.29	Restricted Stock Agreement of Dennis M. McGrath, dated March 30, 2011 (18)
10.30	Restricted Stock Agreement of Michael R. Stewart, dated March 30, 2011 (18)
10.31	Restricted Stock Agreement of Christina L. Allgeier, dated March 30, 2011 (18)
10.32	Amended and Restated Employment agreement, entered into by and between PhotoMedex, Inc. and Dennis McGrath on July 4, 2011. (19)
10.33	Amended and Restated Restricted Stock Agreement, entered into as of August 11, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (20)
10.34	Restricted Stock Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (19)
10.35	Non-Qualified Stock Option Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Dennis McGrath. (19)
10.36	Amended and Restated Employment agreement, entered into by and between PhotoMedex, Inc. and Michael Stewart on July 4, 2011. (19)
10.37	Amended and Restated Restricted Stock Agreement, entered into as of August 11, 2011, by and between PhotoMedex, Inc. and Michael Stewart. (20)

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10.38	Amended and Restated Restricted Stock Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Michael Stewart. (19)
10.39	Non-Qualified Stock Option Agreement, entered into as of July 4, 2011, by and between PhotoMedex, Inc. and Michael Stewart. (19)
10.40	Amended and Restated Employment Agreement entered into by and between PhotoMedex, Inc. and Dolev Rafaeli on August 9, 2011. (21)
10.41	Distribution Agreement by and between Radiancy, Inc. and Ya-Man Ltd., dated October 17, 2008. (21)
10.42	Distribution Agreement Extension by and between Radiancy, Inc. and Ya-Man Ltd., dated August 12, 2010. (21)
10.43	First Amendment to the Nonqualified Stock Option Agreement, dated as of October 31, 2011, by and between PhotoMedex, Inc. and Dennis McGrath (22)
10.44	First Amendment to the Nonqualified Stock Option Agreement, dated as of October 31, 2011, by and between PhotoMedex, Inc. and Michael R. Stewart (22)
10.45	Lease Renewal Agreement, dated February 22, 2012, PhotoMedex, Inc. and FR National Life LLC (28)
10.46	Lease Agreement dated September 1, 2010, by and between 30 Ramland Road, LLC and Radiancy, Inc. (Orangeburg). (25)
10.47	Unprotected Tenancy Agreement dated September 7, 2008 by and between S.A.I. Yarak Buildings and Investments Ltd. and Radiancy (Israel) Ltd. (Hod Hasharon) (25)
10.48	Annex to S.A.I. Radiancy Unprotected Tenancy Lease, dated as of January 20, 2008, by and between S.A.I. Yarak Buildings and Investments Ltd. and Radiancy (Israel) Ltd. (25)
10.49	Exclusive License Agreement for Methods of Treating Diseased Tissue, dated April 1, 2012, by and between the Regents of the University of California and PhotoMedex, Inc. (25)
10.50	Non-Qualified Stock Option Agreement dated March 18, 2012 between PhotoMedex, Inc. and Dolev Rafaeli (25)
10.51	Non-Qualified Stock Option Agreement dated March 18, 2012 between PhotoMedex, Inc. and Dennis McGrath (25)
10.52	Warrant issued March 1, 2012 to Crystal Research Associates LLC. (29)
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Schema
101.CAL†	XBRL Taxonomy Calculation Linkbase
101.DEF†	XBRL Taxonomy Definition Linkbase
101.LAB†	XBRL Taxonomy Label Linkbase
101.PRE†	XBRL Taxonomy Presentation Linkbase

(1)   Filed as part of our Registration Statement on Form S-4, on October 18, 2002, and as amended.

(2)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2002.

(3)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2006.

(4)   Filed as part of our Registration Statement on Form S-1/A, on August 5, 1999.

(5)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2005.

(6)   Filed as part of our Current Report on Form 8-K, on September 13, 2004.

(7)   Filed as part of our Current Report on Form 8-K, on April 10, 2006.

(8)   Filed as part of our Definitive Proxy Statement on Schedule 14A, on November 15, 2005.

- 39 -

(9)   Filed as part of our Registration Statement on Form S-8, on April 13, 2005.

(10)   Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

(11)   Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

(12)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2007.

(13)   Filed as part of our Current Report on Form 8-K on March 5, 2009.

(14)   Filed as part of our Definitive Proxy Statement on Schedule 14A on December 18, 2008.

(15)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2008.

(16)   Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

(17)   Filed as part of our Current Report on Form 8-K on January 11, 2010.

(18)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2010.

(19)    Filed as part of our Current Report on Form 8-K on July 8, 2011.

(20)    Filed as part of our Registration Statement on Form S-4, on August 12, 2011.

(21)   Filed as part of our Registration Statement on Form S-4/A, on October 5, 2011.

(22)   Filed as part of our Registration Statement on Form S-4/A, on November 2, 2011.

(23)   Filed as part of our Current Report on Form 8-K on December 16, 2011.

(24)   Filed as part of our Current Report on Form 8-K on July 2, 2007.

(25)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2011.

(26)   Filed as part of our Current Report on form 8-K on March 23, 2010.

(27)   Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2010.

(28)   Filed with this Form 10-Q.

(29)   Filed as part of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

*

The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

†

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise not subject to liability under those sections. This exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates this exhibit by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PHOTOMEDEX, INC.
Date   August 14, 2012	By:	/s/ Dolev Rafaeli
		Name  Dolev Rafaeli
		Title    Chief Executive Officer

Date   August 14, 2012	By:	/s/ Dennis M. McGrath
		Name  Dennis M. McGrath
		Title    President & Chief Financial Officer

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EX-10.45

EXHIBIT 10.45

AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE- NET

1.        Basic Provisions ("Basic Provisions)

1.1        Parties:ThisLease(Lease},datedfor referencepurposes only February 22, 2012

is made by and between FR National Life, LLC, a Delaware limited liability company                                                                           

                                                                                                                                                                                                (“Lessor”)

and PhotoMedex, Inc. , a Nevada corporation                                                                                                                                         

("Lessee"), (collectively the “Parties”, or individually a “Party”). 1.2(a)Premises:  That certain portion of the Project (as defined below), Including all Improvements therewith or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 2375 Camino Vida Roble, Suite C located in the city of Carlsbad, County of San Diego, State of California with zip code  92011, as outlined on Exhibit A attached hereto ("Premises") and generally described as (described briefly the nature of the Premises): a multi-tenant single level tilt-up building approximately 3,320 square feet of an approximately 15,920 square foot    building within Camino Corporate Center .  In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to any utility raceways of the building containing the Premises ("Building) and to the common Areas (as defined In Paragraph 2.7 below) but shall not: have any rights to the roof or exterior walls of the Building or to any other buildings In the Project.  The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Project" (See also Paragraph 2)

 1.2(b)    Parking: three (3) per 1,000 RSF unreserved vehicle parking spaces. (See also Paragraph 2.6)

 1.3         Term: Three   (3)   years and  Zero (0)   months (''Original Term.")

 commencing June 15 2012                                      ("Commencement Date") and ending September 30, 2015

 (“Expiration Date”).  (See also Paragraph 3)

 1.4         Early Possession: If the Premises are available Lessee may have non-exclusive possession of the Premises commencing

N/A (“Early Possession Date”)

(See also Paragraphs 3.2 and 3.3)

 1.5    Base Rent $ 2,822.00  per month ("Base Rent, payable on the, first                                                    day of each month commencing June 15  2012 (See also Paragraph 4)

þ  lf this box is checked, there are provisions In the Lease for the Base Rent to be adjusted. See Paragraph Rider Paragraph 2

 1.6        Lessee’s share of Common Area operating Expenses:     twenty onepercent (21      %) (Lessee's Share);

In the event that the size of the Premises and or the Project are modified during the term of this Lease, Lessor shall recalculate Lessee’s Share to reflect such modification.

    1. 7        Base Rent and Other Monies Paid Upon Execution:

 (a) Base Rent  $2,822.00                                              for the period June 15, 2012  -  July 14, 2012                                                        ,

 (b) Common Area Operating Expenses:  $973.87                                                                                        for the period 6/15/12 - 7/14/12                                   ,

 (c) Security Deposit: $2,822.00(“Security Deposit")  (See also Paragraph 5),

 (d) Other $____________________  for  ________________________________________________________________________________

 (e) Total Due Upon execution of this Lease: $ 6,617.87                                                                                                   

1.8        Agreed Use:   general office, warehouse, manufacturing and laboratories for bio-medical products.(See also Paragraph 6)

1.9        Insuring Party.  Lessor is the “Insuring Party".  (See also Paragraph 8)

1.10      Real Estate Brokers: (See also Paragraph 15 and 25)

   (a) Representation: The following real estate brokers (“the Brokers”) and brokerage relationships exist in this transaction

(check applicable boxes):

þ  Cassidy Turley BRE   Commercial  (Abramson)______________________________ Represents Lessor exclusively (“Lessor’s Broker”),

o  _________________________________________________________________ Represents Lessor exclusively (“Lessor’s Broker”),

o  _______________________________________________________________ Represents both Lessor and Lessee (“Dual Agency”)

(b)         Payment to Brokers Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers for the brokerage services rendered by the Brokers the fee agreed to in the attached a separate written agreement or if no

 such agreement is attached, the sum of ________________ or ______________% of the total Base Rent payable for the Original Term, the sum of __________  or _______ of the total Base Rent payable during any period of time that the

Lessee occupies the Premises subsequent to the Original Term, and/or the sum of ________________ or _______________% of the purchase price in the event that the Lessee or anyone affiliated with Lessee acquires from Lessor any

rights to the Premises.

 1.11  Guarantor; the obligations of the Lessee under this Lease are to be guaranteed by(“Guarantor”) (See also Paragraph 37)

 1 12  Attachments.  Attached hereto are the following, all of which constitute a part of the Lease.

o 

o  a site plan depicting the Premises, ______________________________________________________________________________

o  a site plan depicting the Project,

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o  a current set of the Rules and Regulations for the Project;

o  current set of the Rules and Regulations adopted by the owners’ association;

o  a Work Letter;

o  other (specifiy); Rider, Exhibit A __________________________________________________________________________________________________________

2.        Premises.

 2.1       Letting.  Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term at the rental, and upon all of the terms, covenants and conditions set forth in this Lease.  While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base Rent stated herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different.   NOTE: Lessee is advised to verify the actual site prior to executing this lease.

 2.2        Condition.  Lessor shall deliver that portion of the Premises contained within the Building (“Unit”) to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within the thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilation and air conditioning systems (“HVAC”'), loading doors, sump pumps, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof bearing walls and foundation of the Unit shall be free of material defects, and that the Unit does not contain hazardous levels of any mold or fungi defined as toxic under the applicable state or federal law.  If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period.  Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction, or failure, rectify same at Lessor’s expense.  The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit.  If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls – see Paragraph 7).  Lessee hereby waives all rights under the provisions of Section 1941 and 1942 of the California Civil Code to (i) cause the Lessor to make any replacements or repairs or take other actions in relation to the Premises, (ii) make replacements or repairs or take other actions at Lessor’s expense or (iii) vacate the Premises.

 2.3        Compliance.  Lessor warrants that to the best of its knowledge the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date (“Applicable Requirements”).  Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 49), or to any Alterations or Utilities Installations (as defined in Paragraph 7.3 (all) made or to be made by Lessee. (as defined In Paragraph 7.3(a)) made or to be made by Lessee.  NOTE; Lessee Is responsible for determining whether or not the Applicable Requirements and especially the zoning are appropriate for Lessee’s Intended use, and acknowledges that past uses of the Premises may no longer be allowed.  If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly alter receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense.  If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of the Lessee at Lessee’s sole cost and expense.  If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:

 (a)Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 month’s Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 month’s Base Rent.  If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter.  Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

 (b)If such Capital Expenditure is not the result of the specific: and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease or any extension thereof, on the date that on which the Base Rent is due, an amount equal to 1/144th of the portion of such costs reasonably attributable to the Premises.  Lessee shall pay interest on the balance but may prepay its obligation at any time.  If, however, such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure.  If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor’s share of such costs have been fully paid.  If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

 (c)Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements.  If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either, (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

 2.4           Acknowledgements. Lessee acknowledges that  (a) it has been given an opportunity to inspect and measure the Premises, (b) It has been advised by Lessor and/or Brokers to satisfy itself with respect to the size and condition of the Premises (including but not limited to the electrical , HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (c) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefore as the same relate to its occupancy of the Premises, (d) it is not relying on any representation as to the size of the Premises made by Brokers or Lessor, (e) the square footage of the Premises was not material to Lessee’s decision to lease the Premises and pay the Rent stated herein, and (f) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease.  In addition, Lessor acknowledges that (i) Brokers have made no representations,

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promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (i) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5         Lessee as Prior Owner/Occupant.  The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises.  In such event, Lessee shall be responsible for any necessary corrective work.

2.6         Vehicle Parking.  Lessee shall be entitled to use the number of parking spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking.  Lessee shall not use more parking spaces than said number.  Said parking spaces shall be used for parking by vehicles no larger than full size passenger automobiles or pickup trucks, herein called “Permitted Size Vehicles.” Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9.  No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor.  In addition:

 (a)Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee’s employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

 (b)Lessee shall not service or store any vehicles in the Common Areas.

 (c)If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

     2.7         Common Areas·Definition.  The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

     2.8         Common Areas·- Lessee's Rights.  Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this lease, the non-exclusive right to use, in common with others entitled to such use. The Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project.  Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas.  Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

     2.9         Common Areas Rules and Regulations.  Lessor or such other person{s) as Lessor may appoint shall have the exclusive control and  management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees.  Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform.  Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.

     2.10           Common Areas·- Changes.  Lessors shall have the right, in Lessor’s sole discretion, from time to time:

 (a)To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

   (b)To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

 (c)To designate other land outside the boundaries of the Project to be a part of the Common Areas;

 (d)To add additional buildings and improvements to the Common Areas;

 (e)To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof, and

   (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate.

3.       Term.

3.1         Term. The Commencement Date, Expiration Date end Original Term of this Lease are as specified In Paragraph 1.3.

3.2         Early Possession.  Any provision herein granting Lessee Early Possession of the Premises is subject to and conditioned upon the Premises being available or such possession prior to the Commencement Date.  Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such Early Possession.  All other terms of this lease (including but not limited to the obligations to pay Lessee’s Share of Common Area Operating Expenses, Real Property Taxes and Insurance premiums and to maintain the Premises) shall be in effect during such period. ny such Early Possession shall not affect the Expiration Date.

3.3         Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date.  If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease or change the Expiration Date.  Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the premises and any period of rent abatement that Less would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered in 60 days after the Commencement Date, as the same may be extended under the terms of any Work Letter executed by Parties, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease.  In which event the Parties shall be discharged from all obligations hereunder.  If such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate.  If possession of the Premises Is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.  Lessee shall cooperate promptly and in good faith with Lessor in the completion of Lessor’s Work, including, but not limited to, the selection of materials.  Any delay caused by Lessee shall not count as a delay in delivering possession of the Premises to Lessee.

3.4         Lessee Compliance.  Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5).  Pending delivery of such evidence, Lessee shall be required to perform all of its

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Obligations under this Lease from and after the start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance.  Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4.       Rent

 4.1        Rent Defined.  All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the security Deposit) are deemed to be rent ("Rent”).

 4.2        Common Area Operating Expenses.  Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee’s Share (as specified In Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

             (a) "Common Area Operating Expenses" are defined, for purposes of this lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following:

(i)       The operation, repair and maintenance, in neat, clean, good order and condition, and if necessary the replacement of the following:

(aa) The  Common Areas and  Common Area Improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, exterior walls of the buildings, building systems and roof drainage systems.

(bb) Exterior signs and any tenant directories.

(cc) Any fire sprinkler systems.

(dd) AIl other areas and improvements that are within the exterior boundaries of the Project but outside of the Premises and or any other space occupied by a tenant.

    (ii)      The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.

(iii)     The cost of trash disposal, pest control services, property management, security services, owners association dues and fees, the cost to repaint the structures and the cost of any environmental inspections.

(iv)     Reserves set aside for maintenance, repair and/or replacement of Common Area Improvements and equipment.

(v)      Real Property Taxes (as define, in Paragraph 10).

(vi)     The cost of the premiums for the Insurance maintenance by Lessor pursuant to Paragraph 6.

(vii)    Any deductible portion of an insured loss concerning the Building or the Common Areas.

(viii)   Auditors’, accountants’ and attorneys’ fees and costs related to the operation, maintenance, repair and replacement of the Project.

(ix)      The cost of any capital improvement to the Building or the Project not covered under the provisions of Paragraph 23 provided, however, that Lessor shall allocate the cost of any such capital improvement over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/144th of the cost of such capital improvement in any given month.

(x)       Management fee equal to three percent (3%) of Base Rent.

(xi)      The cost of any other service to be provided by Lessor that are stated elsewhere in this lease to be a Common Area Operating Expense.

(b)Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building In the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

(c)           The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

(d)          Lessee's Share of Common Area Operating Expenses is payable monthly on the same day as the Base Rent is due hereunder. The amount of such payments shall be based on Lessor's estimate of the annual Common Area Operating Expenses within 60 days after written request (but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses for the preceding year.  If Lessee's payments during such year exceed Lessee's Share, Lessor shall credit the amount of such overpayment against Lessee's future payments.  If Lessee's payments during such year were less than Lessee’s Share, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement.

(e)           Common Area Operating Expenses shall not include any expenses paid by any tenant directly to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or insurance proceeds.

4.3        Payment.  Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar.  In the event that any Invoice prepared by Lessor is Inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease.  Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month.  Payment of Rent shall be made to Lessor at the following address if by mail: FR National Life, LLC, JP Morgan Chase, PO Box 100867. Pasadena, CA  91189-0867, and if by overnight mail: JP Morgan Chase Bank, 2710 Media Center Drive, Bldg. 6, Ste. 120, Los Angeles, CA  90065.  Attn:  FR National Life its address stated herein or to such other persons or place as Lessor may from time to time designate in writing.  Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.  In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent to paid by cashier’s check.  Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.  Lessee hereby waives the provisions of Section 1950.7 of the California Civil Code.

5.       Security Deposit.  Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease.  If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or an portion of said Security Deposit for the payment of any amount already due Lessor, for Rents which will be due in the future, and or to reimburse for or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof.  If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease.  If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the

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Increased Base Rent as the initial Security Deposit bore to the initial Base Rent.  Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sub lessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof.  If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition.  Lessor shall not be required to keep the Security Deposit separate from its general accounts.  Within 90 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor.  No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6.        Use.

6.1       Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties.  Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish or reptiles.  Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the Building or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Project.  If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2        Hazardous Substances.

(a)        Reportable Uses Require Consent. The term “Hazardous Substance” as used In this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (ii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statue or common law theory.  Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil of any products, by-products or fractions thereof.  Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements.  “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation , or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with any governmental authority., and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable  Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties.  Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefore.  In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public the Premises and/or the environment against damage, contamination, injury and/or liability, therefor. In addition, Lessor may condition its consent to any Reportable Use upon recognizing such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) or protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b)           Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under, or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c)        Lessee Remediation.  Lessee shall not cause or permit Hazardous Substance to be spilled or released in, on under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d)        Lessee Indemnification.  Lessee shall Indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any,  harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project not caused or contributed to by Lessee).  Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.  No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e)        Lessor indemnification.  Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which are suffered as a direct result of Hazardous Substances on the Premises prior to Lessee taking possession or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees, except to the extent Lessee contributes to , or exacerbates the existence or condition of the Hazardous Substances, Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited tom, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f)        Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premise prior to the Lessee taking possession, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, or any act or omissions of Lessee that contributes to, or exacerbates, the existence or condition of any Hazardous Substances in which event Lessee shall be responsible for such payment.  Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph D.1(e))  occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at

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Lessor's expense, in which event this Lease sha11 continue In full force and effect, or (i) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000 whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice.  In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent of $100,000 whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment.  In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available.  If Lessee does not give such notice and provide the required funds or assurance thereof, within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3       Lessee's Compliance with the Applicable Requirements.  Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to such Requirements, without regard to whether said Requirements are now in effect or become effective after the Start Date.  Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements.  Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4         Inspection Compliance. Lessor and Lessor’s "lender"" (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises or for verifying compliance by Lessee with this Lease or as otherwise required by law or to comply with applicable law.  The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see Paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority.  In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination.  In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of written request therefor.

7.        Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1        Lessee's Obligations.

 (a)         In General.  Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2.  Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below.  Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the premises and all improvements thereon or a part thereof in good order, condition and state of repair.

(b)        Service Contracts.  Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, and (iii) clarifiers. However, Lessor, reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c)        Failure to Perform. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d)        Replacement Subject to Lessee's Indemnification of Lessor as set forth in Paragraph 8.7 below, and  without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (i.e. 1/144th of the cost per month).  Lessee shall pay interest on the unamortized balance but may prepay its obligation at any time.

7.2        Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep order, condition, repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2.  Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises.  Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3        Utility Installations; Trade Fixtures; Alterations.

(a)        Definitions.  The term "Utility Installations” refers to all floor and window coverings, all and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling , lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.  The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises.  The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.  “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a)

(b)        Consent   Lessee shall not make any Alternations or Utility installations to the Premises without Lessor’s prior written

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consent.  Lessee may, however, make non-structural Alterations or Utility installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or the safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year.  Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor.  Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor.  Any alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans.  Consent shall be deemed conditioned upon Lessee’s, (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner.  Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials.  Lessee shall promptly upon completion furnish Lessor with ?? plans and specifications.  For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a ? and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

(c)         Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialman’s lien against the Premises or any interest therein.  Lessee shall give Lessor not less than 10 days’ notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility.  If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.  If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same.  If Lessor elects to participate in any such action Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4         Ownership; Removal; Surrender, and Restoration.

(a)        Ownership. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises.  Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations.  Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b)        Removal By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease.  Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c)        Surrender; Restoration.  Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted.  "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice.  Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with No allowance for ordinary wear and tear.  Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures.  Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee.  Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements.  Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee.  Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire.  The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4 (c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 28 below.

8.        Insurance; Indemnity.

8.1        Payment of Premiums.  The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraph 8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense.  Premiums policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date.

8.2        Liability Insurance.

(a)        Carried by Lessee.  Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and alI areas appurtenant thereto.  Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000.  Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization’s “Additional Insured-Managers Of Lessors of Premises” Endorsement.  The policy shall not contain any intra insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease.  The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder Lessee shall provide an endorsement on its liability policies(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b)        Carried by Lessor.  Lessor shall maintain liability insurance as described in Paragraph 8.2(a). In addition to, and not in

lieu of, the insurance required to be maintained by Lessee.  Lessee shall not be named as an additional insured therein.

8.3        Property insurance - ·Building, Improvements and Rental Value.

(a)        Building and Improvements.  Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor and to any lender insuring loss or damage to the Premises.  The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof.  Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee not by Lessor.  If the coverage is available and commercially appropriate such policy or policies shall insure against all risks of direct physical loss or damage (except the parts of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss.  Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for all Urban Consumers for the city nearest to where

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the Premises are located.  If such insurance coverage has a deductible clause, the deductible amount shall not exceed $5,000 per occurrence.

(b)         Rental Value.  Lessor shall also obtain and keep in force: a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value Insurance”).  Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

(c)        Adjacent Premises.  Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project of said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

(d)        Lessee's Improvements.  Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alternations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

8.4        Lessee's Property; Business interruption Insurance; Worker's Compensation insurance.

(a)         Property Damage.  Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations.  Such Insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence.  The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations.  Lessee shall provide Lessor with written evidence that such insurance is in force.

(b)        Business lnterruption.  Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business or attributable to prevention of access to the Premises as a result of such perils.

(c)        Worker's Compensation lnsurance.  Lessee shall obtain and maintain Worker's Compensation Insurance in such amount as may be required by Applicable Requirements.

(d)        No Representation or Adequate Coverage.  Lessor makes no representation that the limits or forms of coverage or insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5        Insurance Policies.  Insurance required herein shall be by companies maintaining during the policy term a “General Policyholders Rating" of at least A-, VII, as set forth in the most current issue of “Best’s Insurance Guide", or such other rating as may be required by a Lender.  Lessee shall not do or permit to be done anything which invalidates the required insurance policies.  Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies or such insurance or certificates with copies of the required endorsements evidenced by the existence and amounts of the required Insurance.  No such policy shall be cancelable or subject to modification except after 30 days prior to notice to Lessor.  Lessee shall at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand.  Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less.  If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6        Waiver or Subrogation.  Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of any incident to the perils required to be insured against herein.  The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto.  The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity.  Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.  Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8        Exemption of Lessor and Its Agents from Liability.  Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places, (i) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (ii) injury to Lessee’s business or for any loss of income or profit therefrom.  Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9        Failure to Provide Insurance.  Lessee acknowledges that any failure on its part to obtain or maintain the insurance required therein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain.  Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders of certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater.  The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance.  Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9.        Damage or Destruction.

 9.1        Definitions.

(a)        "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.  Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

(b)        "Premises Total Destruction" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent.  Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

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(c)          "Insured loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d)          "Replacement Cost”  shall mean the cost to replace or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e)          "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the Premises which requires restoration.

 9.2Partial Damage Insured Loss.  If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose.  Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insurance Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs.  In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor.  If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect.  If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter.  Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction.  Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding Paragraph 9 that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3Partial Damage- Uninsured Loss.  If a Premises Partial Damage that is not an insured loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense).  Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage.  Such termination shall be effective 60 days following the date of such notice.  In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor.  Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment.  In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available.  If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4Total Destruction.  Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.  If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

9.5Damage Near End of Term.  If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage.  Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, than Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires.  If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall , at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.  If Lessee fails to exercise such option and provide such funds or assurance during such period, then this lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6Abatement of Rent; Lessee's Remedies.

(a)           Abatement.  In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value Insurance.  All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for such damage, destruction, remediation, repair or restoration except as provided herein.

(b)           Remedies.  If Lessor Is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice.  If Lessee forgives such notice and such repair or restoration is not commenced within 30 day thereafter, this Lease shall terminate as of the date specified in said notice.  If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7        Termination; Advance Payments.  Upon termination of this Lease pursuant to Paragraph 8.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor.  Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8        Lessee waves and releases all statutory rights and remedies in favor of Lessee in the event of damage or destruction, including without limitation, those available under California Civil Code Sections 1932 and 1933(4)

10.         Real Property Taxes.

10 1        Definition.  As used herein, the term “Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond, and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located.  The term “Real Property Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events

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occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.  In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

10.2 Payment of Taxes.  Except as otherwise provided in Paragraph 10.3, Lessor shall pay the Real Property Taxes applicable to the Project, and said payments shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.3 Additional Improvements.  Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees.  Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility installations placed upon the Premises by Lessee or at Lessee’s request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

10.4 Joint Assessment.  If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.  Lessor’s reasonable determination thereof, in good faith, shall be conclusive.

10.5 Personal Property Taxes.  Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises.  When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.  If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11. Utilities and Services. Lessee shall pay for all water gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.  Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor’s sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the trash receptacle and/or an increase in the number of times per month that it is emptied, then Lessor may increase Lessee’s Base Rent by an amount equal to such increased costs.  There shall be no abatement of Rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12. 1 Lessor’s Consent Required.

(a)           Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b)           Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent.  The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c)           The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent.  "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d)           An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or an noncurable Breach without the necessity of any notice and grace period.  If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.  Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e)           Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f)           Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g)          Notwithstanding the foregoing, allowing a de minimis portion of the Premises i.e. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2        Terms and Conditions Applicable to Assignment and Subletting

(a)           Regardless of Lessor's consent, no assignment or subletting shall (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b)           Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppels of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c)           Lessor’s consent to any assignment or subletting shall not constitute consent to any subsequent assignment or subletting.

(d)           In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e)           Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request.  Lessee agrees to provide lessor with such other or additional information as may be reasonably

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requested. (See also Paragraph 36)

(f)          Any assignee of, or sublessee under, this lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with the provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g)          Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3                  Additional Terms and Conditions Applicable to Subletting.  The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a)        Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent.  In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee.  Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee.  Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease.  Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b)        In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c)        Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d)        No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e)        Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.  The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13.         Default; Breach; Remedies.

13.1                  Default; Breach.  A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease.  A "Breach" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a)        The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b)        The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.  THE ACCEPTANCE BY LESSOR OF A PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT CONSTITUTE A WAIVER OF ANY OF LESSOR'S RIGHTS, INCLUDING LESSOR'S RIGHT TO RECOVER POSSESSION OF THE PREMISES.

(c)        The failure of Lessee to allow Lessor and/or its agents access to the Premises or the commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d)        The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate or financial statements, (v) a requested subordination, (vi) evidence concerning any guaranty and for Guarantor, (vii) any document requested under Paragraph 41, (viii) material data safety sheets (MSDS), or (ix) any other documentation or information which lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e)        A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f)        The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g)        The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h)        If the performance of Lessee's obligations under this Lease is guaranteed; (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's refusal to honor the guaranty, or (iv) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2           Remedies.  If Lessee fails to perform any of its affirmative duties or obligations within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals.  The notice provided for in this Section 13.2 shall be in lieu of any notices required by California Code of Civil Procedure Section 1161, et; seq. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor.  In the event of a Breach, Lessor may,

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with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a)        Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor.  In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination, (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease.  The worth at the time of award of the amount referred to in provision (ii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent.  Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12.  If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit.  If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statue shall also constitute the notice required by Paragraph 13.1.  In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b)        As set forth in California Civil Code Section, 1951A continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations.  Acts of maintenance, efforts to, relet and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.  Even though a Breach may have occurred, this Lease shall remain in effect for so long as Lessor does not terminate Lessee’s right to possession, and Lessor may enforce all of Lessor’s rights to remedies under this Lease, including the remedy described in California Civil Code Section 1951A to recover Rent as it becomes due.

(c)        Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located.  The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

(d)        Lessee hereby waives the provisions on California Civil Code Section 3275 and California Code of Civil Procedure Sections 1174(c) and 1179.

13 3Inducement Recapture.  Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions”, shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants, and conditions of this Lease.  Upon Breach of this Lease by Lessee, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.  The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4 Late Charges.  Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender.  Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater.  The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment.  Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder.  In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option , become due and payable quarterly in advance.

13.5Interest.  Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments.  The interest (“interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law.  Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6Breach by Lessor.

(a)        Notice of Breach by Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor.  For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed, provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b)           Performance by Lessee on Behalf of Lessor.  In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completions, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such effect shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to reimbursement from Lessor for any such expense in excess of such offset.  Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.    Condemnation.  If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs.  If more than 10% of the floor area of the Unit, or more than 25% of the parking spaces is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning

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Authority takes such possession.  If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid by the condemner for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph.  All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor.  In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.  Lessor and Lessee hereby waive any statutory rights that conflict with the provisions of the Paragraph 14, including without limitation, rights under California Code of Civil Procedure Sections 1265.110, 1265.120 and 1265.130.

15.        Brokerage Fees.

15.1                  Additional Commission.  If  a separate brokerage fee agreement is attached then in addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option (b) if Lessee or anyone affiliated with Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule attached to such brokerage fee agreement.

15.2Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder.  Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31.  If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue interest.  In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent.  In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3 Representations and Indemnities of Broker Relationships.  Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith.  Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16.         Estoppel Certificates.

(a)           Each Party (as “responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b)        If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) If Lessor is the Requesting Party, not more than one month’s rent has been paid in advance.  Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be stopped from denying the truth of the facts contained in said Certificate.

(c)        If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements of the past 3 years.  All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17.         Definition of Lessor.  The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease.  In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor.  Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor.  Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18.         Severability.  The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.         Days.  Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20.         Limitation on Liability.  The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21.         Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.         No Prior or Other Agreements; Broker Disclaimer.  This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.  Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises.  Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.

23.         Notices.

23.1Notice Requirements.  AIl notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23.  The address as noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices.  Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice.  A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

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23.2Date of Notice.  Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon.  If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid.  Notices delivered by United State Express Mai or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier.  Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail.  If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24        Waivers

 (a)        No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof.  Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of any estoppels to enforce the provision or provisions of this Lease requiring such consent.

 (b)        The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee.  Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

 (c)        THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT SUCH STATUTE IS INCONSISTENT WITH THIS LEASE.

 25. Disclosures Regarding The Nature of a Real Estate Agency

 (a)        When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction.  Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

 (i)           Lessor’s Agent.  A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only.  A lessor’s agent or subagent has the following affirmative obligations:  To the Lessor; A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.  To the Lessee and the Lessor:   (a) Diligent exercise of reasonable skills and care in performance of the agent’s duties.  (b) A duty of honest and fair dealing and good faith.   (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that not known to, or within the diligent attention and observation of, the parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 (ii)           Lessee’s Agent.  An agent can agree to act as agent for the Lessee only.  In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations.  To the Lessee A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee.  To the Lessee and the Lessor:  (a) Diligent exercise of reasonable skills and care in performance of the agent’s duties.  (b)  A duty of honest and fair dealing and good faith.  (c)  A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties.  An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

 (iii)           Agent Representing Both Lessor and Lessee.  A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee.  In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee (a)  A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with either Lessor or the Lessee.  (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) and (ii).  In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered.  The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interest.  Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction.  A real estate agent is a person qualified to advise about real estate.  If legal or tax advice is desired, consult a competent professional.

 (b)        Brokers have no responsibility with respect to any Default or Breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys’ fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 (c)        Lessor and Lessee agree to identify to Brokers as “confidential” any communication or information given Brokers that is considered by such party to be confidential.

26.        No Right To Holdover.  Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease.  In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination.  Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.        Cumulative Remedies.  No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.        Covenants and Conditions; Construction of Agreement.  All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions.  In constructing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the plural and vice versa.  This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.        Binding Effect; Choice of law.  This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located.  Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30.        Subordination; Attornment Non·Disturbance.

30.1         Subordination This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device”),·now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.  Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease.  Any lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Leases and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the

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documentation or recordation thereof.

30.2Attornment in the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Devise to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor which was not paid or credited to such new owner.

30.3Non-Disturbance.  With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.  Further, within 60 days after the execution of this Lease, Lessor shall, if requested by Lessee, use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises.  In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4Self-Executing.  The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.         Attorneys’ Fees.  If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.  Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment.  The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense.  The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.  In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.         Lessor's Access; Showing Premises; Repairs.  Lessor and Lessor’s agents shall have the right to enter the Premises at any time.  In the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lender, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or to the Premises as long as there is no material adverse effect on Lessee’s use of the Premises.  All such activities shall be without abatement of rent or liability to Lessee.

33.         Auctions.  Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent.  Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.         Signs.  Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof.  Except for ordinary “For Sublease” signs which may be placed only on the Premises.  Lessee shall not place any sign upon the Project without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35.   Termination; Merger, Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this lease by Lessee, the mutual termination of cancellation hereof, or a determination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36.        Consents.  Except as otherwise provided herein, wherever in this lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed.  Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefore.  Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any than existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent.  The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.  In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37.        Guarantor.

37.1 Execution. The Guarantors, if any, Shall each execute a guaranty in the form most recently published by the Air Commercial Real Estate Association.

37.2 Default.  It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38      Quiet Possession.  Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part of be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options.  If Lessee is granted an option, as defined below, then the following provisions shall apply.

39.1Definition.  “Option" shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Personal to Original Lessee.  Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premise and, if

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requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3Multiple Options.  In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be assigned or exercised unless the prior Options have been validly exercised.

39.4Effect of Default on Options.

(a)         Lessee shall have no right to exercise an Option:  (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee),  (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b)         The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c)         An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.

40         Security Measures.  Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same.  Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and Invitees and their property from the acts of third parties.

41.         Reservations.  Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

42         Performance Under Protest.  If at any time a dispute should arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute such for recovery of such sum.  If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.  A Party who does not initiate suit for the recovery of sums paid “under protest” within 8 months shall be deemed to have waived its right to protest such payment.

43.       Authority, Multiple Parties; Execution.

(a)         If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and delivery this Lease on its behalf.  Each Party shall within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b)         If this Lease is executed by more than one person or entity as "Lessee”, each such person or entity shall be jointly and severally liable hereunder.  It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c)         This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

44.       Conflict.  Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45       Offer.  Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party.  This Lease is not intended to be binding until executed and delivered by all Parties hereto.

46.       Amendments.  This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.  As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

47.       Waiver of Jury Trial.   THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48       Arbitration of Disputes.  An Addendum requiring the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease

___is ___ is not attached to this Lease.

49.       Americans with Disabilities Act.  Since compliance with the Americans with Disability Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation.  In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO.  THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES,

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES.  THE PARTIES ARE URGED TO:

1.        SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.        RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES.  SAID

INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF

THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO

BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at__________________________________	Executed at___________________________________________
On: ________________________________________	On:   _________________________________________________
By LESSOR	By LESSEE
FR National Life, LLC. a Delaware limited	PhotoMedex, Inc., a Nevada corporation
liability company
By:  First Industrial, L.P., a Delaware limited	By: /s/ Michael R. Stewart
partnership, its sole member	Name Printed:  Michael R. Stewart
By:  First Industrial Realty Trust, Inc., a Maryland	Title:  Executive Vice President

PAGE 16 OF 17

BROKER:	BROKER:
corporation, its sole general partner
By:	By:
Name Printed: Ryan McClean	Name Printed:
Title:  Senior Regional Director	Title:
	Address:
By:
Name Printed:
Title:	Telephone (   )
Address:  898 N. Sepulveda Blvd., Ste. 750	Facsimile (   )
El Segundo, CA  90245	Email:
	Email:
Telephone (310) 414.5400	Federal ID No.
Facsimile: (310) 414.5462
Email:  rmclean@firstindustrial.com
Email:
Federal ID No.

BROKER:	BROKER:
Cassidy Turley BRE Commercial	Cassidy Turley BRE Commercial
Attn: Jeff Abramson	Attn: Jeff Abramson
Title:	Title:
Address:  1000 Aviara Parkway, Suite 100	Address:  1000 Aviara Parkway, Suite 100
Carlsbad, CA  92010	Carlsbad, CA  92010
Telephone (760) 431.4200	Telephone (760) 431.4200
Facsimile: (760) 454.3869	Facsimile: (760) 454.3869
Email:	Email:
Federal ID No.	Federal ID No.
Broker/Agent DRE License #:  CA Lic. 00956805	Broker/Agent DRE License #:  CA Lic. 00956805

Notice: These forms are often modified to meet changing requirements of law and Industry needs. Always write or call to make sure you are utilizing the most current form:  AIR Commercial Real Estate Association, 800 W 6th Street, suite 800, Los Angeles, CA 90017. Telephone No. (213) 637.8777. Fax No: (213) 687-8618.

©'Copyright 1999 By AIR Commercial Real Estate Association.

All rights reserved. No part of these works may be reproduced in any form without permission In writing.

AirForms\Forms\Abramson\2012\2375CaminoVidaRoble·PhotoMedex-MTLN

PAGE 17 OF 17

INITIALS

___________

____________

___________

       ______________

RIDER

This Rider (“Rider") is a part of and incorporated into that certain Standard Industrial/Commercial Multi-Tenant Lease-Net (the "Original Lease"; the Original Lease together with the Rider shall be collectively referred to herein as the "Lease") dated as of February 22, 2012 by and between FR National Life, LLC, a Delaware limited liability company (“Lessor”) and PhotoMedex, Inc., a Nevada corporation (“Lessee").  Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to them in the Original Lease.

1.        Conflict   If there is a conflict between the terms of this Rider and the Original Lease, the terms of this Rider shall control.

2.        Base Rent Lessee shall pay Base Rent to Lessor in monthly installments, in advance, on the first day of each month and every calendar month during the Term in the amounts and for the periods set forth below:

Lease Period June 15, 2012 - July 31, 2012	Monthly Base Rent   $2,822.00
August 1, 2012 - October 31, 2012	$0.00
November 1, 2012 - September 30, 2013	$2,822.00
October 1, 2013 - September 30, 2014	$2,907.00
October 1, 2014- September 30, 2015	$2,994.00

Rent shall be prorated for the period June 15, 2012 thru June 20, 2012 at the amount of $1,505.07.  The rental rate shall increase 3% annually.  Additionally, the base rent shall be abated for three (3) months during the first year of the lease (“the Abated Rent”).

3.        Parking. Notwithstanding anything to the contrary in the Original Lease, Lessee shall be entitled to use Lessee's Pro-Rata Share of unreserved parking spaces at the Project on a non-reserved basis at no additional cost for the entire Term (as may be extended).  Lessee's Pro­ Rata Share of unreserved parking spaces is estimated to be approximately three (3) spaces per 1,000 rentable square feet of space leased (based on the ration of the square footage of the Premises to the square footage of the Project.

4.        Signage.  Lessee shall not affix any sign of any size or character to any portion of the Premises, without prior written approval of Lessor, which approval shall not be unreasonably withheld or delayed.  Lessee shall remove all signs of Lessee upon the expiration or earlier termination of the Lease and immediately repair any damage to all Premises caused by, or resulting from, such removal.  Failure of the Lessee to remove all signs upon the expiration or earlier termination of the Lease or the earlier termination of Lessee’s right to occupy the Premises shall entitle Lessor to remove such signs at the expense of Lessee.  Notwithstanding the foregoing and subject to Lessor's prior written approval, and all local ordinances and the Applicable Requirements, including but not limited to all Covenants, Conditions and Restrictions and Applicable City of Carlsbad codes and regulations.  Lessee shall have the right to install signage on the monument sign at the Premises and obtain all permits in connection therewith at Lessee's sole cost and expense.  Lessee shall pay for all costs relating to the design, fabrication, installation, permitting, maintaining, and removal of said signage. All signage permitted hereby shall conform to standards of design motif, and décor from time to time established by Lessor for the Project and shall be insured and maintained at all time by Lessee, at its sole cost and expense, in good condition, operating order and repair.  If any damage is done to Lessee's sign(s). Lessee shall commence to repair same within thirty (30) days after such damage occurs, and upon Lessee's failure to commence the repair work within said thirty (30) day period and to diligently prosecute the same to completion, Lessor may, in Lessor's sole discretion, elect to repair such damage and Lessee shall pay Lessor, as additional Rent upon demand, Lessor's costs and expensed in connection therewith.

5.        Expense.  Lessee shall be responsible for paying all taxes, insurance and maintenance expenses (NNN) during the initial term of the Lease and any extensions thereof. Lessee shall also be responsible for their own trash removal and utilities over the initial Term of the Lease and any extensions thereof.

6.        Lessee Access.  Lessee shall have access to the Building, the Premises, and all designated parking areas 24 hours per day, 7 days per week.

7.        Counterparts.  This Rider may be executed in two (2) or more counterparts, each of which shall be considered an original and all of which, when taken together, shall constitute one (1) instrument.  A facsimile or electronic counterpart of this Rider shall be deemed an original for all relevant purposes.

IN WITNESS WHEREOF, the parties have executed this Rider as of the date of the Original Lease.

LESSOR:	LESSEE:
FR National Life, LLC. a	PhotoMedex, Inc., a Nevada corporation
Delaware limited liability company
By:  First Industrial, L.P., a Delaware
limited partnership, its sole member
By:  First Industrial Realty Trust, Inc
a Maryland corporation, its sole
General Partner
By:     /s/Ryan McClean	By:    /s/ Michael R. Stewart
Ryan McClean
Senior Regional Director
Date:       3/21/12	Date:   March 16, 2012

 AMENDED AND RESTATED

FIRST AMENDMENT TO STANDARD INDUSTRIAL /COMMERCIAL

MULTI -TENANT LEASE-NET

This First Amendment to Standard Industrial/Commercial Multi -Tenant Lease-Net (the "Amendment" is made as of this 22ndDay of February, 2012,by and between FRNational Life, LLC, a Delaware limited liability company ("Lessor") and PhotoMedex, Inc., a Nevada corporation ("Lessee").

RECITALS

A.           WHEREAS, Landlord and Tenant entered into that certain Standard Industrial/Commercial Multi -Tenant Lease-Net dated March 17, 2005 for the space commonly known as 2375 Camino Vida Roble, Suite B, Carlsbad CA 92011, comprising approximately 8,000 SF.

B.           WHEREAS, Lessor and Lessee desire to amend certain terms of the Lease in accordance with the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing and the terms and provisions of this Amendment, Lessor and Lessee agree as follows:

1.   DefinedTerms. All terms used in this Amendment but not otherwise defined in this Amendment shall have the same meanings respectively ascribed to them in the Lease. The Lease, as modified by this Amendment, is referred to as the "Lease".

2.   Term. The term of the lease shall beextended by a period of three (3) years from the current lease expiration date of June 14, 2012 and terminate on September 30, 2015.

3.   RentalRate. The rental rate will commence June 15, 2012, at the monthly rate of $6,800.

Rent shall beprorated for the period June 15, 2012 thru June 30, 2012 at the amount of $3,626.67. The rental rate shall increase 3% annually.  Additionally, in consideration for the lease renewal, the base rent shall beabated for three (3) months during the first year of the extension ("the Abated Rent").

LeasePeriod June 15, 2012-July 31, 2012	MonthlyBaseRent $6,800.00
August 1, 2012- October 31, 2012	$0.00
November 1, 2012- September 30, 2013	$6,800.00
October 1, 2013- September 30, 2014	$7,004.00
October 1, 2014- September 30, 2015	$7,214.00

Page 1 of 3

4. TenantImprovements. Landlord shall provide a Tenant Improvement Allowance of $22,000 for the cost of Tenant Improvement Construction ("Tenant Improvement Allowance") for building improvements and all related fees and expenses.  In no event, shall the Landlord be responsible for any costs incurred that are up and beyond the Tenant Improvement Allowance.  The Tenant Improvement Allowance must be used by December 31, 2012.

5. Security Deposit. Tenant shall not have to personally guarantee the lease.

6. Signage. At no fee or profit for Landlord, Tenant shall be allowed to install signage adjacent to Tenant's main suite entrance and building top signage at Tenant's sole expense. The costs associated with the purchase, installation, maintenance and eventual removal of such signage shall be borne by Tenant.  All signage shall conform to all zoning and CC&R's, and Landlord shall have reasonable review and approval rights of Tenant's signage.

7. Conflict. In the event there is conflict or inconsistency between the terms and conditions of this Amendment and the terms and conditions of the Lease, the terms and conditions of this Amendment shall control.  Except as otherwise expressly amended hereby, the Lease shall remain in full force and effect according to its terms.

8. Counterparts: Facsimile. This Amendment may be executed in two (2) or more counterparts, each of which shall be considered an original and all of which, when taken together, shall constitute one (1) instrument.  A facsimile counterpart of this Amendment shall be deemed an original for all relevant purposes.

9. Change of Control. Section 12.l(b) and (c) shall to apply to Lessee, inasmuch it is a publicly traded company.

 INWITNESS WHEREOF,Lessor and Lessee have executed this Amendment as of the dale first written above.

SIGNATURE PAGE TO FOLLOW

Page 2 of 3

LESSOR:

FRNationalLife,LLC.a Delaware limited liability company

By: By:FirstIndustrial, L.P., a Delaware limited partnership,itssolemember

By: By: First Realty Trust, Inc., a Maryland corporation, its sole general partner

 By:

Its:  Senior Regional Director            

Date: 4/17/12

LESSEE:

PhotoMedex,Inc,a Nevada corporation

By:  /s/ Jeff Levatter

Its: CTO & General Manager            

Date:    4/17/12                                   

Page 3of 3

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Dolev Rafaeli, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of PhotoMedex, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	PhotoMedex, Inc.
Date: August 14, 2012	By:	/s/ Dolev Rafaeli
		Name:  Dolev Rafaeli
		Title:    Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Dennis M. McGrath, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of PhotoMedex, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	Company Name
Dated: August 14, 2012	By:	/s/ Dennis M. McGrath
		Name Dennis M. McGrath
		Title Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 906 CERTIFICATION

CERTIFICATION (1)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Dolev Rafaeli, the Chief Executive Officer of PhotoMedex, Inc. (the “Company”), and Dennis M. McGrath, the President and Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 14, 2012

/s/    Dolev Rafaeli              

Dolev Rafaeli

Chief Executive Officer

/s/    Dennis M. McGrath     

Dennis McGrath

President and Chief Financial Officer

(1) This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of PhotoMedex, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to PhotoMedex, Inc. and will be retained by PhotoMedex, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Goodwill and Other Intangible Assets [Abstract]
Goodwill recorded as a part of purchase price allocation	$ 26,704
Definite-lived intangible assets recorded as a part of purchase price allocation	12,000
Accumulated impairment loss	0
Schedule of definite-lived intangible assets [Abstract]
Gross Amount	12,000		12,000
Accumulated Amortization	(650)		(50)
Net Book Value	11,350		11,950
Amortization expense	600	0
Estimated amortization expense for amortizable intangible assets [Abstract]
Last nine months of 2012	600
2013	1,200
2014	1,200
2015	1,200
2016	1,200
Thereafter	5,950
Total	11,350		11,950
Trademarks [Member]
Schedule of definite-lived intangible assets [Abstract]
Gross Amount	5,700		5,700
Accumulated Amortization	(309)		(24)
Net Book Value	5,391		5,676
Estimated amortization expense for amortizable intangible assets [Abstract]
Total	5,391		5,676
Customer Relationships [Member]
Schedule of definite-lived intangible assets [Abstract]
Gross Amount	6,300		6,300
Accumulated Amortization	(341)		(26)
Net Book Value	5,959		6,274
Estimated amortization expense for amortizable intangible assets [Abstract]
Total	$ 5,959		$ 6,274

XML

Significant Customer Concentration (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Customer A [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue generated by single major customer (in hundredths)	11.00%	22.00%	8.00%	23.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue generated by single major customer (in hundredths)	9.00%	11.00%	7.00%	11.00%

XML

Significant Customer Concentration (Tables)

6 Months Ended

Jun. 30, 2012

Significant Customer Concentration [Abstract]

Significant customer concentration

Significant Customer Concentration:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Customer A		11	%		22	%		8	%		23	%
Customer B		9	%		11	%		7	%		11	%

XML

Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2012

Property and Equipment [Abstract]

Schedule property and equipment

Set forth below is a detailed listing of property and equipment:

	June 30, 2012			December 31, 2011
	(unaudited)
Lasers-in-service	$	5,147		$	4,187
Equipment, computer hardware and software		3,677			3,576
Furniture and fixtures		594			529
Leasehold improvements		387			376
		9,805			8,668
Accumulated depreciation and amortization		(4,461	)		(3,344	)
Property and equipment, net	$	5,344		$	5,324

XML

Long-term Debt (Details) (USD $)			6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Term Loan [Member]
Long-term debt [Abstract]
Term note, net of unamortized debt discount of $0 and $302, respectively	$ 0	$ 1,698,000
Capital lease obligations	24,000	30,000
Sub-total	24,000	1,728,000
Less: current portion	(24,000)	(1,720,000)
Total long-term Debt	0	8,000
Debt Instrument [Line Items]
Principal amount of term loan			2,500,000
Rate of interest (in hundredths)			12.00%
Extended date of maturity			Dec. 01, 2012
Final payment at maturity			75,000
Future minimum payments in connection with long-term debt and capital lease obligations [Abstract]
Six months of 2012	15,000
2013	10,000
Total minimum payments	25,000
Less: interest	(1,000)
Present value of total minimum obligations	$ 24,000

XML

Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Schedule property and equipment [Abstract]
Property and equipment, gross	$ 9,805		$ 8,668
Accumulated depreciation and amortization	(4,461)		(3,344)
Property and equipment, net	5,344		5,324
Depreciation and related amortization expense	1,155	129
Property and equipment, net	5,344		5,324
Capitalized lease arrangements included in long-term debt	0		8
Lasers-in-service [Member]
Schedule property and equipment [Abstract]
Property and equipment, gross	5,147		4,187
Equipment, Computer Hardware and Software [Member]
Schedule property and equipment [Abstract]
Property and equipment, gross	3,677		3,576
Furniture and Fixtures [Member]
Schedule property and equipment [Abstract]
Property and equipment, gross	594		529
Leasehold Improvements [Member]
Schedule property and equipment [Abstract]
Property and equipment, gross	387		376
Assets Held under Capital Leases [Member]
Schedule property and equipment [Abstract]
Property and equipment, net	70		61
Property and equipment, net	70		61
Capitalized lease arrangements included in long-term debt	$ 24		$ 30

XML

Inventories

6 Months Ended

Jun. 30, 2012

Inventories [Abstract]

Inventories

Note 3

Inventories:

Set forth below is a detailed listing of inventories:

	June 30, 2012		December 31, 2011
	(unaudited)
Raw materials and work in progress	$	9,249	$	7,105
Finished goods		11,864		12,103
Total inventories	$	21,113	$	19,208

Work-in-process is immaterial, given the Company's typically short manufacturing cycle, and therefore is disclosed in conjunction with raw materials.

XML

Income Taxes (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Effective income tax rate reconciliation [Line Items]
Statutory income tax rate (in hundredths)	(34.00%)	(34.00%)
Israeli subsidiaries [Member]
Effective income tax rate reconciliation [Line Items]
Rate at which subsidiary earnings are taxed (in hundredths)		16.00%
UK Subsidiaries [Member]
Effective income tax rate reconciliation [Line Items]
Rate at which subsidiary earnings are taxed (in hundredths)		26.00%

XML

Other Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2012

Other Accrued Liabilities [Abstract]

Schedule of other accrued liabilities

Other Accrued Liabilities:

	June 30, 2012		December 31, 2011
	(unaudited)
Accrued warranty, current	$	1,378	$	1,157
Accrued taxes, including liability for unrecognized tax benefit, see Note 11		2,391		5,101
Accrued sales returns (1)		11,789		6,143
Other accrued liabilities		4,351		2,588
Total other accrued liabilities	$	19,909	$	14,989

(1)   The activity in the sales returns liability account was as follows:

	Six Months Ended June 30,
	2012			2011
	(unaudited)			(unaudited)
Balance at beginning of year	$	6,143		$	3,406
Additions that reduce net sales		22,224			14,843
Deductions from reserves		(16,578	)		(11,305	)
Balance at end of period	$	11,789		$	6,944

XML

Accrued Compensation and Related Expenses (Tables)

6 Months Ended

Jun. 30, 2012

Accrued Compensation and Related Expenses [Abstract]

Schedule of accrued compensation and related expenses

Accrued Compensation and related expenses:

	June 30, 2012		December 31, 2011
	(unaudited)
Accrued payroll and related taxes	$	901	$	1,260
Accrued vacation		401		251
Accrued commissions and bonus		1,560		2,289
Total accrued compensation and related expense	$	2,862	$	3,800

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Employee Stock Benefit Plans (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended				3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Employees And Consultants [Member]	Jun. 30, 2012 Executive employees [Member]	Dec. 31, 2011 Restricted Stock [Member]	Jun. 30, 2012 Restricted Stock [Member]	Dec. 13, 2011 Restricted Stock [Member]	Dec. 31, 2011 Restricted Stock [Member] Executive employees [Member]	Jun. 30, 2012 Non-Employee Director Stock Option Plan [Member]	Jun. 30, 2012 Non-Employee Director Stock Option Plan [Member] Common Stock [Member]	Jun. 30, 2012 Non-Employee Director Stock Option Plan [Member] Stock Options [Member]	Jun. 30, 2012 2005 Equity Plan [Member]	Jun. 30, 2012 2005 Equity Plan [Member] Common Stock [Member]	Jun. 30, 2012 2005 Equity Plan [Member] Stock Options [Member]
Employee Stock Benefit Plan [Abstract]
Common stock authorized in stock option plan (in shares)									120,000			3,000,000
Common stock issued or reserved for issuance (in shares)										7,000	18,951		753,095	890,170
Common stock awarded to directors elected to board (in shares)									5,000
Number of Options [Roll Forward]
Outstanding, January 1, 2012 (in shares)	180,718
Granted (in shares)	739,000		509,000	230,000
Exercised (in shares)	(6,022)
Cancelled (in shares)	(3,629)
Outstanding (in shares)	910,067
Options exercisable (in shares)	182,567
Weighted Average Exercise Price [Roll Forward]
Outstanding January 1, 2012 (in dollars per share)	$ 19.54
Granted (in dollars per share)	$ 15.87		$ 14	$ 20
Exercised (in dollars per share)	$ 6.44
Cancelled (in dollars per share)	$ 33.16
Outstanding, June 30, 2012 (in dollars per share)	$ 16.59
Options exercisable at June 30, 2012 (in dollars per share)	$ 19.35
Unrecognized compensation cost related to non-vested option grants and stock awards	$ 11,637
Weighted-average period over which unrecognized compensation is expected to be recognized	3 years 9 months 18 days
Weighted average assumptions to estimate fair value of grants of stock options [Abstract]
Risk-free interest rate (in hundredths)	1.20%
Volatility (in hundredths)	85.50%
Expected dividend yield (in hundredths)	0.00%
Expected life	5 years 6 months
Estimated forfeiture rate (in hundredths)	0.00%
Common stock issued to non-employee directors (in shares)	30,000
Number of non-employee directors	6
Aggregate fair value of common stock issued to non-employee directors	405
Options granted to purchase common stock (in shares)	739,000		509,000	230,000
Strike price of options granted (in dollars per share)	$ 15.87		$ 14	$ 20
Vesting period of options granted			5 years	5 years	3 years
Number of executive employees	2				2
Share based compensation arrangement by share based payment award expiration term			10 years	10 years
Aggregate fair value of options granted	6,652
Restricted common stock issued as part of reverse merger (in shares)								380,000
Purchase price of common stock (in dollars per share)					$ 0.01
Unvested stock awards assumed during reverse acquisition (in shares)	164,000
Shares awarded by Pre-merged PhotoMedex (in shares)						200,000
Number of senior executives						2
Stock awards vested (in shares)							36,000
Common stock eligible to be repurchased (in shares)	354,791					354,791
Purchase price of common stock eligible to be repurchased (in dollars per share)	$ 0.005
Exercise price of options replaced (in dollars per share)						$ 0.01
Stock-based compensation to be vested over original vesting period	1,177
Total stock-based compensation expense	$ 3,288	$ 14,836

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Long-term Debt (Tables)

6 Months Ended

Jun. 30, 2012

Long-term Debt [Abstract]

Schedule of long-term debt

In the following table is a summary of the Company's long-term debt, which the Company assumed in the reverse merger on December 13, 2011.

	June 30, 2012			December 31, 2011
	(unaudited)
Term note, net of unamortized debt discount of $0 and $302, respectively	$	-		$	1,698
Capital lease obligations		24			30
Sub-total		24			1,728
Less: current portion		(24	)		(1,720	)
Total long-term debt	$	-		$	8

Future minimum payments for long-term debt and capital lease obligations

The following table summarizes the future minimum payments that the Company expects to make for long-term debt and capital lease obligations:

Six months of 2012	$	15
2013		10
Total minimum payments		25
Less: interest		(1	)
Present value of total minimum obligations	$	24

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Employee Stock Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2012

Employee Stock Benefit Plans [Abstract]

Stock option activity under share-based compensation plans

Stock option activity under all of the Company's share-based compensation plans for the six months ended June 30, 2012 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2012		180,718		$	19.54
Granted		739,000			15.87
Exercised		(6,022	)		6.44
Cancelled		(3,629	)		33.16
Outstanding, June 30, 2012		910,067		$	16.59
Options exercisable at June 30, 2012		182,567		$	19.35

Weighted average assumptions used to estimate fair value of stock options

The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of stock options with the following weighted-average assumptions:

	Six Months Ended June 30, 2012
Risk-free interest rate		1.2	%
Volatility		85.5	%
Expected dividend yield		0	%
Expected life	5.5 years
Estimated forfeiture rate		0	%

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Reverse Acquisition

6 Months Ended

Jun. 30, 2012

Reverse Acquisition [Abstract]

Reverse Acquisition

Note 2

Reverse Acquisition:

On December 13, 2011, PhotoMedex closed the merger acquisition with Radiancy, Inc. in a transaction that was accounted for as a reverse acquisition, with Radiancy treated as the accounting acquirer. Radiancy was considered the accounting acquirer even though PhotoMedex was the issuer of common stock in the transaction, such that upon completion of the merger, the Company had 18,820,852 shares of common stock issued and outstanding, with the Pre-merged PhotoMedex, Inc. stockholders collectively owning approximately 20%, and the former Radiancy, Inc. stockholders owning approximately 80%, of the outstanding common stock of the Company. The 80%/20% ratio reflects the fact that warrants or options are not treated as equivalent outstanding common stock. As such, the financial statements of Radiancy, Inc. are treated as the historical financial statements of the Company, with the results of the entities defined as Pre-merged PhotoMedex, Inc. included only from December 14, 2011 and thereafter.

The consideration transferred was $83,915, included $1,842 of assumed debt, for the Pre-merged PhotoMedex assets. This amount was determined based on the amount of equity interest (shares, options and warrants) that Radiancy would have had to issue to PhotoMedex shareholders in order to provide as agreed upon in the merger document a 75%/25% ownership ratio on a fully converted basis. Consistent with this formula all warrants and options were treated as equivalent, share for share, with outstanding common stock. The fair value of the consideration effectively transferred by Radiancy was based on the market price of Pre-merged PhotoMedex shares which was $15.60 per-share (closing price) on December 13, 2011, the day on which the reverse acquisition became effective. This consideration transferred also included $20 million in cash, which Pre-merged PhotoMedex, used to liquidate its convertible debt, prior to the acquisition. The fair value of the assets acquired and liabilities assumed were based on management estimates and values derived from an outside independent appraisal. However, as of June 30, 2012, the Company is still in the process of assessing the acquired entity's tax positions and the amount of net loss carryforwards that are expected to be utilized in future periods based on the facts and circumstances that existed at the acquisition date. Accordingly, the deferred taxes and, therefore, the goodwill allocations might be subject to adjustments upon completion of assessment. The Company expects that the allocation will be finalized within twelve months after the merger as allowed by GAAP. Based on the provisional purchase price allocation, the following table summarizes the estimated provisional fair value amounts of the assets acquired and liabilities assumed at the date of acquisition:

Cash and cash equivalents	$	1,271
Accounts receivable		1,873
Inventories		7,136
Prepaid expenses and other current assets		639
Property and equipment		4,543
Patents and licensed technologies		13,500
Other intangible assets		12,000
Other assets		41
Deferred tax assets		27,122
Total assets acquired at fair value		68,125
Accounts payable		(6,333	)
Accrued compensation and related expenses		(1,554	)
Other accrued liabilities		(2,471	)
Deferred revenues		(556	)
Total liabilities assumed		(10,914	)
Net assets acquired	$	57,211

The purchase price exceeded the fair value of the net assets acquired by $26,704, which was recorded as goodwill.

The consolidated results of operations do not include any revenues or expenses related to the Pre-merged PhotoMedex business on or prior to December 13, 2011, the consummation date of the reverse acquisition. The Company's unaudited pro-forma results for the three and six months ended June 30, 2012 and 2011 summarize the combined results of the Radiancy and PhotoMedex in the following table, assuming the reverse acquisition had occurred on January 1, 2011 and after giving effect to the reverse acquisition adjustments, including amortization of the tangible and intangible assets which were acquired in the transaction:

	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
	(unaudited)			(unaudited)
Net revenues	$	42,253		$	85,216
Net income		(12,265	)		(5,926	)
Net income per share:
Basic	$	(0.93	)	$	(0.45	)
Diluted	$	(0.93	)	$	(0.45	)
Shares used in calculating net income per share:
Basic		13,135,327			13,139,090
Diluted		13,135,327			13,139,090

These unaudited pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the reverse acquisition occurred on January 1, 2011, nor to be indicative of future results of operations.

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Business Segment and Geographic Data (Tables)

6 Months Ended

Jun. 30, 2012

Business Segment and Geographic Data [Abstract]

Results of operations from business segments

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	50,464		$	5,274		$	3,168		$	58,906
Costs of revenues		8,169			2,605			1,581			12,355
Gross profit		42,295			2,669			1,587			46,551
Gross profit %		83.8	%		50.6	%		50.1	%		79.0	%
Allocated operating expenses:
Engineering and product development		240			275			245			760
Selling and marketing expenses		27,544			2,421			1,103			31,068
Unallocated operating expenses		-			-			-			9,243
		27,784			2,696			1,348			41,071
Income (loss) from operations		14,511			(27	)		239			5,480
Interest  and other financing income (expense), net		-			-			-			(401	)
Net income (loss) before taxes	$	14,511		$	( 27	)	$	239		$	5,079

Three Months Ended June 30, 2011

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	32,459		$	-		$	1,388		$	33,847
Costs of revenues		5,206			-			484			5,690
Gross profit		27,253			-			904			28,157
Gross profit %		84.0	%		-	%		65.1	%		83.2	%
Allocated operating expenses:
Engineering and product development		207			-			42			249
Selling and marketing expenses		14,853			-			537			15,390
Unallocated operating expenses		-			-			-			28,926
		15,060			-			579			44,565
Income (loss) from operations		12,193			-			325			(16,408	)
Interest and other financing income (expense), net		-			-			-			161
Net income (loss) before taxes	$	12,193		$	-		$	325		$	(16,247	)

Six Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	92,665		$	10,347		$	6,167		$	109,179
Costs of revenues		14,941			5,284			3,364			23,589
Gross profit		77,724			5,063			2,803			85,590
Gross profit %		83.9	%		48.9	%		45.4	%		78.4	%
Allocated operating expenses:
Engineering and product development		477			585			456			1,518
Selling and marketing expenses		49,693			4,950			2,260			56,903
Unallocated operating expenses		-			-			-			16,362
		50,170			5,535			2,716			74,783
Income (loss) from operations		27,554			(472	)		87			10,807
Interest  and other financing income (expense), net		-			-			-			(631	)
Net income (loss) before taxes	$	27,554		$	( 472	)	$	87		$	10,176

Six Months Ended June 30, 2011

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	66,086		$	-		$	2,502		$	68,588
Costs of revenues		11,002			-			910			11,912
Gross profit		55,084			-			1,592			56,676
Gross profit %		83.4	%		-	%		63.6	%		82.6	%
Allocated operating expenses:
Engineering and product development		339			-			80			419
Selling and marketing expenses		29,058			-			979			30,037
Unallocated operating expenses		-			-			-			31,739
		29,397			-			1,059			62,195
Income (loss) from operations		25,687			-			533			(5,519	)
Interest and other financing income (expense), net		-			-			-			192
Net income (loss) before taxes	$	25,687		$	-		$	533		$	(5,327	)

Net revenues and long-lived assets by geographical area

For the three and six months ended June 30, 2012 and 2011, net revenues by geographic area were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
North America 1	$	43,948	$	23,312	$	82,636	$	47,848
Asia Pacific 2		8,466		8,174		13,773		16,812
Europe (including Israel)		6,245		1,685		11,453		2,983
South America		247		676		1,317		945
	$	58,906	$	33,847	$	109,179	$	68,588
1 United States	$	37,470	$	19,980	$	70,093	$	41,936
2  Japan	$	6,847	$	7,510	$	10,174	$	15,556

For the three and six months ended June 30, 2012 and 2011, long-lived assets by geographic area were as follows:

	Three Months Ended June 30,
	2012		2011
North America	$	4,531	$	1
Asia Pacific		-		-
Europe (including Israel)		813		718
South America		-		-
	$	5,344	$	719

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Accrued Compensation and Related Expenses (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Accrued Compensation and related expenses [Abstract]
Accrued payroll and related taxes	$ 901	$ 1,260
Accrued vacation	401	251
Accrued commissions and bonus	1,560	2,289
Total accrued compensation and related expense	$ 2,862	$ 3,800

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 52,886	$ 16,549
Accounts receivable, net of allowance for doubtful accounts of $4,664 and $3,196, respectively	23,933	12,393
Inventories, net	21,113	19,208
Deferred tax asset	10,103	10,079
Prepaid expenses and other current assets	11,774	3,611
Total current assets	119,809	61,840
Property and equipment, net	5,344	5,324
Patents and licensed technologies, net	13,513	14,435
Other intangible assets	11,350	11,950
Goodwill, net	26,704	26,704
Deferred tax asset	25,966	24,751
Funds in respect of employee rights upon retirement and other assets	739	559
Total assets	203,425	145,563
Current liabilities:
Current portion of notes payable	101	504
Current portion of long-term debt	24	1,720
Accounts payable	11,494	8,111
Accrued compensation and related expenses	2,862	3,800
Other accrued liabilities	19,909	14,989
Deferred revenues	3,602	1,948
Total current liabilities	37,992	31,072
Long-term liabilities:
Long-term debt, net of current maturities	0	8
Deferred revenues	2,532	1,381
Other liabilities	326	504
Liability for employee rights upon retirement	583	520
Total liabilities	41,433	33,485
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2012 and December 31, 2011	0	0
Common stock, $.01 par value, 50,000,000 shares authorized; 21,881,182 and 18,821,728 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	219	188
Treasury stock at cost, 16,056 shares of common stock	(250)	(250)
Additional paid-in capital	140,233	99,325
Retained earnings	21,883	12,813
Accumulated other comprehensive income (loss)	(93)	2
Total stockholders' equity	161,992	112,078
Total liabilities and stockholders' equity	$ 203,425	$ 145,563

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Business Segment and Geographic Data (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011
Business Segment and Geographic Data [Abstract]
Number of operating units					3
Results of operations from business segments [Abstract]
Revenues	$ 58,906		$ 33,847		$ 109,179		$ 68,588
Cost of revenues	12,355		5,690		23,589		11,912
Gross profit	46,551		28,157		85,590		56,676
Gross profit % (in hundredths)	79.00%		83.20%		78.40%		82.60%
Allocated operating expenses [Abstract]
Engineering and product development	760		249		1,518		419
Selling and marketing expenses	31,068		15,390		56,903		30,037
Unallocated operating expenses	9,243		28,926		16,362		31,739
Total operating expenses	41,071		44,565		74,783		62,195
Income (loss) from operations	5,480		(16,408)		10,807		(5,519)
Interest and other financing income (expense), net	(401)		161		(631)		192
Net income (loss) before taxes	5,079		(16,247)		10,176		(5,327)
Net revenues by geographic area [Abstract]
Revenues	58,906		33,847		109,179		68,588
Long-lived assets by geographic area [Abstract]
Long-lived assets	5,344		719		5,344		719
North America [Member]
Results of operations from business segments [Abstract]
Revenues	43,948	[1]	23,312	[1]	82,636	[1]	47,848	[1]
Net revenues by geographic area [Abstract]
Revenues	43,948	[1]	23,312	[1]	82,636	[1]	47,848	[1]
Long-lived assets by geographic area [Abstract]
Long-lived assets	4,531		1		4,531		1
Asia Pacific [Member]
Results of operations from business segments [Abstract]
Revenues	8,466	[2]	8,174	[2]	13,773	[2]	16,812	[2]
Net revenues by geographic area [Abstract]
Revenues	8,466	[2]	8,174	[2]	13,773	[2]	16,812	[2]
Long-lived assets by geographic area [Abstract]
Long-lived assets	0		0		0		0
Europe (Including Israel) [Member]
Results of operations from business segments [Abstract]
Revenues	6,245		1,685		11,453		2,983
Net revenues by geographic area [Abstract]
Revenues	6,245		1,685		11,453		2,983
Long-lived assets by geographic area [Abstract]
Long-lived assets	813		718		813		718
South America [Member]
Results of operations from business segments [Abstract]
Revenues	247		676		1,317		945
Net revenues by geographic area [Abstract]
Revenues	247		676		1,317		945
Long-lived assets by geographic area [Abstract]
Long-lived assets	0		0		0		0
United States [Member]
Results of operations from business segments [Abstract]
Revenues	37,470		19,980		70,093		41,936
Net revenues by geographic area [Abstract]
Revenues	37,470		19,980		70,093		41,936
Japan [Member]
Results of operations from business segments [Abstract]
Revenues	6,847		7,510		10,174		15,556
Net revenues by geographic area [Abstract]
Revenues	6,847		7,510		10,174		15,556
CONSUMER [Member]
Results of operations from business segments [Abstract]
Revenues	50,464		32,459		92,665		66,086
Cost of revenues	8,169		5,206		14,941		11,002
Gross profit	42,295		27,253		77,724		55,084
Gross profit % (in hundredths)	83.80%		84.00%		83.90%		83.40%
Allocated operating expenses [Abstract]
Engineering and product development	240		207		477		339
Selling and marketing expenses	27,544		14,853		49,693		29,058
Unallocated operating expenses	0		0		0		0
Total operating expenses	27,784		15,060		50,170		29,397
Income (loss) from operations	14,511		12,193		27,554		25,687
Interest and other financing income (expense), net	0		0		0		0
Net income (loss) before taxes	14,511		12,193		27,554		25,687
Net revenues by geographic area [Abstract]
Revenues	50,464		32,459		92,665		66,086
PHYSICIAN RECURRING [Member]
Results of operations from business segments [Abstract]
Revenues	5,274		0		10,347		0
Cost of revenues	2,605		0		5,284		0
Gross profit	2,669		0		5,063		0
Gross profit % (in hundredths)	50.60%		0.00%		48.90%		0.00%
Allocated operating expenses [Abstract]
Engineering and product development	275		0		585		0
Selling and marketing expenses	2,421		0		4,950		0
Unallocated operating expenses	0		0		0		0
Total operating expenses	2,696		0		5,535		0
Income (loss) from operations	(27)		0		(472)		0
Interest and other financing income (expense), net	0		0		0		0
Net income (loss) before taxes	(27)		0		(472)		0
Net revenues by geographic area [Abstract]
Revenues	5,274		0		10,347		0
PROFESSIONAL [Member]
Results of operations from business segments [Abstract]
Revenues	3,168		1,388		6,167		2,502
Cost of revenues	1,581		484		3,364		910
Gross profit	1,587		904		2,803		1,592
Gross profit % (in hundredths)	50.10%		65.10%		45.40%		63.60%
Allocated operating expenses [Abstract]
Engineering and product development	245		42		456		80
Selling and marketing expenses	1,103		537		2,260		979
Unallocated operating expenses	0		0		0		0
Total operating expenses	1,348		579		2,716		1,059
Income (loss) from operations	239		325		87		533
Interest and other financing income (expense), net	0		0		0		0
Net income (loss) before taxes	239		325		87		533
Net revenues by geographic area [Abstract]
Revenues	$ 3,168		$ 1,388		$ 6,167		$ 2,502

[1] Net revenues (in thousands) from United States for three and six months ended June 2012 and 2011 are $37,470, $19,980, $ 70,093 and $ 41,936 respectively.

[2] Net revenues (in thousands) from Japan for three and six months ended June 2012 and 2011 are $6,847, $7,510, $10,174 and $15,556 respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash Flows From Operating Activities:
Net income (loss)	$ 9,070	$ (1,960)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	2,771	184
Provision for doubtful accounts	2,091	1,808
Deferred income taxes	(1,234)	(6,105)
Stock-based compensation	3,288	14,836
Changes in operating assets and liabilities:
Accounts receivable	(13,655)	(10,594)
Inventories	(1,923)	(743)
Prepaid expenses and other assets	(8,139)	643
Accounts payable	3,390	(240)
Accrued compensation and related expenses	(938)	(840)
Other accrued liabilities	4,756	16,697
Other liabilities	63	36
Deferred revenues	2,805	885
Net cash provided by operating activities	2,345	14,607
Cash Flows From Investing Activities:
Purchases of property and equipment	(218)	(93)
Lasers placed in service	(949)	0
Proceeds from deposit	0	8,500
Amounts carried to patents	0	(35)
Increase in funds - employees retirement rights	(63)	(37)
Net cash (used in) provided by investing activities	(1,230)	8,335
Cash Flows From Financing Activities:
Payments on notes payable	(349)	0
Repayments of long term debt	(2,000)	0
Issuance of warrants	98	0
Proceeds from issuance of common stock, net	37,514	0
Proceeds from option exercises	39	0
Net cash provided by financing activities	35,302	0
Effect of exchange rate changes on cash	(80)	0
Net increase in cash and cash equivalents	36,337	22,942
Cash and cash equivalents, beginning of period	16,549	7,581
Cash and cash equivalents, end of period	52,886	30,523
Supplemental information:
Cash paid for income taxes	10,922	5,315
Cash paid for interest	$ 77	$ 0

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Reverse Acquisition (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 13, 2011
Reverse Acquisition [Abstract]
Effective date of merger		Dec. 13, 2011		Dec. 13, 2011
Common stock issued after giving effect to merger (in shares)		21,881,182		18,821,728	18,820,852
Common stock outstanding after giving effect to merger (in shares)		21,881,182		18,821,728	18,820,852
Business Acquisition [Line Items]
Amount of consideration		$ 83,915
Amount of debt assumed		1,842
Market price of pre-merged PhotoMedex Shares (in dollars per share)		$ 15.6
Consideration transferred in cash		20
Period of finalization of allocation post merger		12 months
Fair value of the assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents		1,271
Accounts receivable		1,873
Inventories		7,136
Prepaid expenses and other current assets		639
Property and equipment		4,543
Patents and licensed technologies		13,500
Other intangible assets		12,000
Other assets		41
Deferred tax assets		27,122
Total assets acquired at fair value		68,125
Accounts payable		(6,333)
Accrued compensation and related expenses		(1,554)
Other accrued liabilities		(2,471)
Deferred revenues		(556)
Total liabilities assumed		(10,914)
Net assets acquired		57,211
Goodwill recognized under reverse acquisition		26,704
Summarized combined result after giving effect acquisition adjustments [Abstract]
Net revenues	42,253		85,216
Net income	$ (12,265)		$ (5,926)
Net income per share [Abstract]
Basic (in dollars per share)	$ (0.93)		$ (0.45)
Diluted (in dollars per share)	$ (0.93)		$ (0.45)
Shares used in calculating net income per share [Abstract]
Basic (in shares)	13,135,327		13,139,090
Diluted (in shares)	13,135,327		13,139,090
PhotoMedex, Inc. [Member]
Business Acquisition [Line Items]
Percentage of ownership on reverse merger (in hundredths)		20.00%
Percentage of ownership agreed on reverse merger (in hundredths)		25.00%
Radiancy, Inc. [Member]
Business Acquisition [Line Items]
Percentage of ownership on reverse merger (in hundredths)		80.00%
Percentage of ownership agreed on reverse merger (in hundredths)		75.00%

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Basis of Presentation (Tables)

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Activity in the warranty accrual

The Company offers a standard warranty on product sales generally for a one to two-year period. In the case of domestic sales of XTRAC lasers, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated future warranty claims on the date the product is sold. Total accrued warranty is included in Other Accrued Liabilities on the balance sheet. The activity in the warranty accrual during the six months ended June 30, 2012 and 2011 is summarized as follows:

	June 30,
	2012			2011
	(unaudited)			(unaudited)
Accrual at beginning of year	$	1,661		$	260
Additions charged to warranty expense		919			202
Expiring warranties		(218	)		(-	)
Claims satisfied		(658	)		(128	)
Total		1,704			334
Less: current portion		(1,378	)		(334	)
Accrued warranty	$	326		$	-

Calculation of basic and diluted earnings per common share using weighted average shares outstanding

Basic and diluted earnings per common share were calculated using the following weighted-average shares outstanding:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding		20,547,244		10,256,364		19,454,775		10,256,364
Dilutive effect of stock options and warrants		487,570		-		487,570		-
Diluted number of common and common stock equivalent shares outstanding		21,034,814		10,256,364		19,942,345		10,256,364

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Schedule of inventories [Abstract]
Raw materials and work in progress	$ 9,249	$ 7,105
Finished goods	11,864	12,103
Total inventories	$ 21,113	$ 19,208

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Inventories (Tables)

6 Months Ended

Jun. 30, 2012

Inventories [Abstract]

Schedule of Inventories

Set forth below is a detailed listing of inventories:

	June 30, 2012		December 31, 2011
	(unaudited)
Raw materials and work in progress	$	9,249	$	7,105
Finished goods		11,864		12,103
Total inventories	$	21,113	$	19,208

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

Note 1

The Company:

Background

PhotoMedex, Inc. (and its subsidiaries) (the "Company") is a Global Skin Health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. The Company provides proprietary products and services that address skin diseases and conditions including psoriasis, vitiligo, acne, actinic keratosis (a precursor to certain types of skin cancer) and photo damage.

On December 13, 2011, the Company closed the merger with Radiancy, Inc. As of December 13, 2011, immediately after giving effect to the acquisition and the issuance of PhotoMedex, Inc.'s common stock to the former shareholders of Radiancy, Inc., the Company had 18,820,852 shares of common stock issued and outstanding. Immediately following the reverse merger, the pre-reverse merger shareholders of PhotoMedex, Inc. ("Pre-merged PhotoMedex") collectively owned approximately 20% of the Company's outstanding common stock, and the former Radiancy, Inc. stockholders owning approximately 80% of the Company's outstanding common stock.

The merger was accounted for as a reverse acquisition with Radiancy treated for accounting purposes as the acquirer. As such, the financial statements of Radiancy, Inc. are treated as the historical financial statements of the Company, with the results of Pre-merged PhotoMedex, Inc. being included from December 14, 2011 and thereafter. For periods prior to the closing of the reverse acquisition, therefore, our discussion below relates to the historical business and operations of Radiancy, Inc.

As a result of the acquisition, the Company implemented a revised business plan focused on three key components - skilled direct sales force to target Physician and Professional Segments; expertise in global consumer marketing; and a full product-life-cycle model representing the ability to develop and commercialize innovative products from concept through regulatory, physician acceptance, and ultimately marketed directly to the consumer as dictated by normal product-life-cycle evolution. The Company reorganized its business into three operating units to better align its organization based upon the Company's management structure, products and services offered, markets served and types of customers.

Based upon this strategic focus, effective December 13, 2011, management updated the segments that the Company now currently operates. There are now three distinct business units or segments (as described in Note 13): Consumer, Physician Recurring and Professional. The segments are distinguished by the Company's management structure and the markets or customers served.

The Consumer segment, the Company's largest business unit, generates revenues by bringing professional technologies into the home-use arena, through the no!no!® product line. The Physician Recurring segment generates revenues from two product lines: (A) the XTRAC®, a noninvasive, FDA-cleared solution for psoriasis and vitiligo, and (B) NEOVA®, a topical therapy combining DNA repair enzymes and copper peptide complexes to prevent premature skin aging. The Professional segment generates revenues from capital equipment, such as the XTRAC lasers, LHE® brand products and the Omnilux® and Lumière Light Therapy systems.

Basis of Presentation:

The accompanying condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 ("fiscal 2011"). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company's financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature. Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.

The results for the three months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012 or for any other interim period or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements include the results from the entities defined as Pre-merged PhotoMedex from December 14, 2011 (the day following the closing date of the reverse acquisition) forward. As such there are no corresponding activities for the three and six months ended June 30, 2011.

Revenue Recognition

The Company recognizes revenues from product sales when the following four criteria have been met: (i) the product has been delivered and the Company has no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is reasonably assured. Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.

The Company ships most of its products FOB shipping point, although from time to time certain customers, for example governmental customers, will insist upon FOB destination. Among the factors the Company takes into account when determining the proper time at which to recognize revenue are when title to the goods transfers and when the risk of loss transfers. Shipments to distributors or physicians that do not fully satisfy the collection criteria are recognized when invoiced amounts are fully paid or fully assured.

For revenue arrangements with multiple deliverables within a single, contractually binding arrangement (usually sales of products with separately priced extended warranty), each element of the contract is accounted for as a separate unit of accounting when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.

With respect to sales arrangements under which the buyer has a right to return the related product, revenue is recognized only if all the following are met: the price is fixed or determinable at the date of sale; the buyer has paid, or is obligated to pay and the obligation is not contingent on resale of the product; the buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product; the buyer has economic substance; the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and the amount of future returns can be reasonably estimated.

The Company provides a provision for product returns based on the experience with historical sales returns, in accordance with ASC Topic 605-15 with respect to sales of product when a right of return exists. Reported revenues are shown net of the returns provision. Such allowance for sales returns is included in Other Accrued Liabilities. (See Note 8).

Deferred revenue includes amounts received with respect to extended warranty maintenance, repairs and other billable services and amounts not yet recognized as revenues. Revenues with respect to such activities are recognized over the duration of the warranty period, the service period or when service is provided, as applicable to each service.

The Company has two distribution channels for its phototherapy treatment equipment. The Company either (i) sells its lasers through a distributor or directly to a physician or (ii) places its lasers in a physician's office (at no charge to the physician) and generally charges the physician a fee for an agreed upon number of treatments. In some cases, the Company and the customer stipulate to a quarterly or other periodic target of procedures to be performed, and accordingly revenue is recognized ratably over the period.

When the Company places a laser in a physician's office, it generally recognizes service revenue based on the number of patient treatments performed, or purchased under a periodic commitment, by the physician. Treatments to be performed through random laser-access codes that are sold to physicians free of a periodic commitment, but not yet used, are deferred and recognized as a liability until the physician performs the treatment. Unused treatments remain an obligation of the Company because the treatments can only be performed on Company-owned equipment. Once the treatments are delivered to a patient, this obligation has been satisfied.

The Company defers substantially all sales of treatment codes ordered by and delivered to its customers within the last two weeks of the period in determining the amount of procedures performed by its physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period.

Revenue from maintenance service agreements is deferred and recognized on a straight-line basis over the term of the agreements. Revenue from billable services, including repair activity, is recognized when the service is provided.

Fair Value Measurements

The Company measures and discloses fair value in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification 820, Fair Value Measurements and Disclosures ("ASC Topic 820"). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 - unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 - pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 - pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. The fair values of notes payable and long-term debt are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity. The estimated fair values of notes payable and long-term debt approximate the carrying values. The fair value of the amounts funded in insurance policies in respect of employee liability for employee rights upon retirement is usually identical or close to their carrying value. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.

Accrued Warranty Costs

The Company offers a standard warranty on product sales generally for a one to two-year period. In the case of domestic sales of XTRAC lasers, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated future warranty claims on the date the product is sold. Total accrued warranty is included in Other Accrued Liabilities on the balance sheet. The activity in the warranty accrual during the six months ended June 30, 2012 and 2011 is summarized as follows:

	June 30,
	2012			2011
	(unaudited)			(unaudited)
Accrual at beginning of year	$	1,661		$	260
Additions charged to warranty expense		919			202
Expiring warranties		(218	)		(-	)
Claims satisfied		(658	)		(128	)
Total		1,704			334
Less: current portion		(1,378	)		(334	)
Accrued warranty	$	326		$	-

For extended warranty on the consumer products, see Revenue Recognition above.

Earnings Per Share

Due to the reverse merger on December 13, 2011, the earnings per share for each period before the acquisition date presented in these financial statements were computed based on Radiancy's historical weighted-average number of shares outstanding, multiplied by the exchange ratio that was established in the reverse merger. Therefore, unless otherwise noted, all share and per-share amounts for all periods before the acquisition date have been retroactively adjusted to give effect to the exchange ratio.

Basic and diluted earnings per common share were calculated using the following weighted-average shares outstanding:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding		20,547,244		10,256,364		19,454,775		10,256,364
Dilutive effect of stock options and warrants		487,570		-		487,570		-
Diluted number of common and common stock equivalent shares outstanding		21,034,814		10,256,364		19,942,345		10,256,364

Diluted earnings per share for the three and six months ended June 30, 2012, exclude the impact of common stock options and warrants, totaling 1,975,530 shares, as the effect of their inclusion would be anti-dilutive.

Adoption of New Accounting Standards

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-04, which amends Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures. This ASU clarifies among other things, the FASB's intent with respect to the application of existing fair value requirements, including those related to highest and best use concepts, and also expands the disclosure requirements for fair value measurements categorized within Level 3 of the fair value hierarchy. This ASU clarifies that a reporting entity should disclose quantitative information about significant unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. Additionally, this ASU expands the disclosures for fair value measurements categorized within Level 3 where a reporting entity is required to include a description of the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. Additional disclosure is also required for any transfers between Level 1 and Level 2 of the fair value hierarchy of fair value measurements on a gross basis as well as additional disclosure of the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value. For many of the requirements, the FASB does not intend for this ASU to result in a change in the application of the requirements in FASB ASC Topic 820. This update became effective during interim and annual periods beginning after December 15, 2011. 

In June 2011, the FASB issued ASU No. 2011-05, which amends FASB ASC Topic 220, Comprehensive Income. This ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update became effective during interim and annual periods beginning after December 15, 2011. 

In September 2011, the FASB issued ASU No. 2011-08, which amends FASB ASC Topic 350, Intangibles-Goodwill and Other. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This update became effective during interim and annual periods beginning after December 15, 2011. 

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Accounts receivable, allowance for doubtful accounts	$ 4,664	$ 3,196
Stockholders' Equity
Preferred Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, authorized (in shares)	5,000,000	5,000,000
Preferred Stock, issued (in shares)	0	0
Preferred Stock, outstanding (in shares)	0	0
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, authorized (in shares)	50,000,000	50,000,000
Common Stock, issued (in shares)	21,881,182	18,821,728
Common Stock, outstanding (in shares)	21,881,182	18,821,728
Treasury Stock, at cost (in shares)	16,056	16,056

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

Note 11

Income Taxes:

The Company's effective tax rate is dependent upon the geographic distribution of its earnings or losses (mainly between US and Israel).

The difference between the Company's effective tax rates for three and six month periods ended June 30, 2012 and the U.S. Federal statutory rate (34%) resulted primarily from Pre-merged PhotoMedex current operations which have generated losses, which reduced the overall corporate tax expense and which will have effect on current tax expense when the Company elects to file a U.S. consolidated income tax return. In addition, the Company recorded a receivable for federal taxes paid in 2010 due to the expected carry back of the Company's 2011 net operating loss for a refund of the 2010 taxes paid by our subsidiary Radiancy, Inc. The receivable is net of alternative minimum tax that is residual to 2010. In addition, the Israeli and UK subsidiaries' earnings are taxed at rates lower than the federal statutory rate (generally 16% to 26%, respectively).

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and can be ambiguous and the Company is required to make many subjective assumptions and judgments regarding the application of such laws and regulations to its facts and circumstances. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to change over time. Any changes in the Company's subjective assumptions and judgments could materially affect amounts recognized in its consolidated balance sheets and statements of income.

The Company continues to examine the utilization of the loss carryforwards from Pre-merged PhotoMedex and the effect of income taxes on the recording of the reverse acquisition on December 13, 2011.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 14, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	PHOTOMEDEX INC
Entity Central Index Key	0000711665
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		21,881,182
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012

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Employee Stock Benefit Plans

6 Months Ended

Jun. 30, 2012

Employee Stock Benefit Plans [Abstract]

Employee Stock Benefit Plans

Note 12

Employee Stock Benefit Plans:

Post-Reverse Merger

Following the closing of the reverse acquisition, the previous Non-Employee Director Stock Option Plan of PhotoMedex (the acquired entity) was adopted by the group. This plan has authorized 120,000 shares; of which 7,000 shares had been issued or were reserved for issuance as awards of shares of common stock, and 18,951 shares were reserved for outstanding stock options. The directors who were elected to our Board in connection with the reverse merger, each received a one-time stock award of 5,000 shares of the Company's common stock.

In addition, following the closing of the reverse acquisition, the previous 2005 Equity Compensation Plan ("2005 Equity Plan") of Pre-merged PhotoMedex (the acquired entity) was also adopted for use by the group. The 2005 Equity Plan has authorized 3,000,000 shares, of which 753,095 shares had been issued or were reserved for issuance as awards of shares of common stock, and 890,170 shares were reserved for outstanding options.

Stock option activity under all of the Company's share-based compensation plans for the six months ended June 30, 2012 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding, January 1, 2012		180,718		$	19.54
Granted		739,000			15.87
Exercised		(6,022	)		6.44
Cancelled		(3,629	)		33.16
Outstanding, June 30, 2012		910,067		$	16.59
Options exercisable at June 30, 2012		182,567		$	19.35

At June 30, 2012, there was $11,637 of total unrecognized compensation cost related to non-vested option grants and stock awards that is expected to be recognized over a weighted-average period of 3.8 years. The intrinsic value of options outstanding and exercisable at June 30, 2012 was not significant.

The Company calculates expected volatility for a share-based grant based on historic daily stock price observations of its common stock. For estimating the expected term of share-based grants made in the six months ended June 30, 2012, the Company has adopted the simplified method. The Company has used historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of expense as of the grant date.

The Company uses the Black-Scholes option-pricing model to estimate fair value of grants of stock options with the following weighted-average assumptions:

	Six Months Ended June 30, 2012
Risk-free interest rate		1.2	%
Volatility		85.5	%
Expected dividend yield		0	%
Expected life	5.5 years
Estimated forfeiture rate		0	%

With respect to grants of options, the risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant or award.

On January 26, 2012, the Company issued 30,000 shares of common stock to the six non-employee directors for an aggregate fair value of $405.

On March 18, 2012, the Company granted an aggregate of 509,000 options to purchase common stock to a number of employees and consultants with a strike price of $14, which was higher than the quoted market value of our stock at the date of grants. The options vest over five years and expire ten years from the date of grant. Also on March 18, 2012, the Company granted an aggregate of 230,000 non-qualified options to purchase common stock to two executive employees with a strike price of $20, which was set to match the exercise price of the warrants issued in the reverse merger and was higher than the quoted market value of our stock at the date of grant. The aggregate fair value of the options granted was$6,652. The options vest over five years and expire ten years from the date of grant.

On December 13, 2011, as part of the reverse merger, the Company issued 380,000 shares of restricted common stock to two executives of Pre-merged PhotoMedex. These restricted shares have a purchase price of $0.01 per share and vest, and cease to be subject to the Company's right of repurchase, over a three-year period. The Company determined the fair value of the awards to be the fair value of the Company's common stock on the date of issuance less the value paid for the award.

As part of the reverse acquisition, the Company assumed 164,000 unvested restricted stock awards that were issued on March 30, 2011. Pre-merged PhotoMedex had awarded 200,000 shares of restricted stock to two of its senior executives. The awards were amended on July 4, 2011 and on August 11, 2011 with respect to the vesting provisions such that upon the closing of the reverse merger, each executive would vest in that number of shares that could be vested without causing excise taxes under Sec. 4999 of the Internal Revenue Code to be imposed on the executiveor the loss in any material respect of a deduction under Section 162(m) of the Internal Revenue Code, and any remaining shares would vest in substantially equal monthly installments over a 3-year period, on each month end, so long as the executive continues to be employed by the Company on each such date. If the executive's employment is terminated by the Company without cause, due to his resignation for good reason, or as the result of his death or disability, the vesting of the shares shall be accelerated. 36,000 of the restricted stock awards were vested as of December 13, 2011, the date of the reverse merger, for the one executive who opted to be so vested.

Out of the total options exercised into shares of common stock during 2011, the Company shall have the right to repurchase 354,791 shares of common stock at a price equal to the par value of such shares ($0.005 per share) in the event of either the resignation or the termination for cause according to the employment agreement of the employees with the Company or its subsidiary. The repurchase right will be subject to the same vesting periods as the option grants themselves. The Company accounted for the replacement of the options with an exercise price of $0.01, with 354,791 restricted shares, with similar vesting terms, as a modification of an award and determined that the fair value of the replaced award equals the new award and therefore no incremental costs should be recorded. As a result, the original stock based compensation of $1,177 continues to be expensed over the original vesting period.

Total stock based compensation expense was $3,288 and $14,836 for the six months ended June 30, 2012 and 2011.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract]
Revenues	$ 58,906	$ 33,847	$ 109,179	$ 68,588
Cost of revenues	12,355	5,690	23,589	11,912
Gross profit	46,551	28,157	85,590	56,676
Operating expenses:
Engineering and product development	760	249	1,518	419
Selling and marketing	31,068	15,390	56,903	30,037
General and administrative	9,243	28,926	16,362	31,739
Total operating expenses	41,071	44,565	74,783	62,195
Operating profit (loss)	5,480	(16,408)	10,807	(5,519)
Other income (loss):
Interest and other financing income (expense), net	(401)	161	(631)	192
Income (loss) before income tax (expense) benefit	5,079	(16,247)	10,176	(5,327)
Income tax (expense) benefit	(866)	6,202	(1,106)	3,367
Net income (loss)	4,213	(10,045)	9,070	(1,960)
Net income (loss) per share:
Basic (in dollars per share)	$ 0.20	$ (0.98)	$ 0.47	$ (0.19)
Diluted (in dollars per share)	$ 0.20	$ (0.98)	$ 0.45	$ (0.19)
Shares used in computing net income (loss) per share:
Basic (in shares)	20,547,244	10,256,364	19,454,775	10,256,364
Diluted (in shares)	21,034,814	10,256,364	19,942,345	10,256,364
Other comprehensive loss:
Foreign currency translation adjustments	(90)	0	(95)	0
Comprehensive income (loss)	$ 4,123	$ (10,045)	$ 8,975	$ (1,960)

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 6

Goodwill and Other Intangible Assets:

As part of the purchase price allocation for the reverse acquisition, as further discussed in Note 2, the Company recorded goodwill in the amount of $26,704 and definite-lived intangibles in the amount of $12,000. Goodwill reflects the value or premium of the acquisition price in excess of the fair values assigned to specific tangible and intangible assets. Goodwill has an indefinite useful life and therefore is not amortized as an expense, but is reviewed annually for impairment of its fair value to the Company. The purchase price intrinsically recognizes the benefits of the broadened depth of the management team and the addition of a sizeable direct sales force creating greater access to the physician community with branded products and technologies. Furthermore, the purchase price paid by Radiancy, Inc, a private company includes, among other things, other benefits such as the intrinsic value of being a Nasdaq-listed issuer post merger and now having access to capital markets and stockholder liquidity. During 2012, after the completion of the purchase price allocation, the goodwill will be allocated to the current reportable segments.

The Company has no accumulated impairment losses as of June 30, 2012.

Set forth below is a detailed listing of other definite-lived intangible assets:

	June 30, 2012							December 31, 2011
	(unaudited)
	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Trademarks	$	5,700	$	(309	)	$	5,391	$	5,700	$	(24	)	$	5,676
Customer Relationships	$	6,300	$	(341	)	$	5,959	$	6,300	$	(26	)	$	6,274
	$	12,000	$	(650	)	$	11,350	$	12,000	$	(50	)	$	11,950

Related amortization expense was $600 and $0 for the periods ended June 30, 2012 and 2011. Customer Relationships embody the value to the Company of relationships that pre-merged PhotoMedex had formed with its customers. Trademarks include the tradenames and various trademarks associated with Pre-merged PhotoMedex products (e.g. "XTRAC", "Neova" "Omnilux" and "Lumiere").

Estimated amortization expense for the above amortizable intangible assets for the next five years is as follows:

Last six months of 2012	$	600
2013		1,200
2014		1,200
2015		1,200
2016		1,200
Thereafter		5,950
Total	$	11,350

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Patents and Licensed Technologies, net

6 Months Ended

Jun. 30, 2012

Patents and Licensed Technologies, net [Abstract]

Patents and Licensed Technologies, net

Note 5

Patents and Licensed Technologies, net:

	June 30, 2012									December 31, 2011
	(unaudited)
	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Patents	$	15,217	$	(1,704	)	$	13,513	$	15,124	$	(689	)	$	14,435

Related amortization expense was $1,015 and $55 for the six months ended June 30, 2012 and 2011, respectively. An amount of $13,500, included in Patents, represents product and core technologies recorded as part of the purchase price allocation done in connection with the reverse acquisition in order to set the Pre-merged PhotoMedex assets to their respective fair values.

Estimated amortization expense for amortizable patents and licensed technologies assets for the next five years is as follows:

Last six months of 2012	$	1,046
2013		2,035
2014		2,035
2015		2,028
2016		1,980
Thereafter		4,389
Total	$	13,513

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Reverse Acquisition (Tables)

6 Months Ended

Jun. 30, 2012

Reverse Acquisition [Abstract]

Schedule of Purchase Price Allocation

The consideration transferred was $83,915, included $1,842 of assumed debt, for the Pre-merged PhotoMedex assets. This amount was determined based on the amount of equity interest (shares, options and warrants) that Radiancy would have had to issue to PhotoMedex shareholders in order to provide as agreed upon in the merger document a 75%/25% ownership ratio on a fully converted basis. Consistent with this formula all warrants and options were treated as equivalent, share for share, with outstanding common stock. The fair value of the consideration effectively transferred by Radiancy was based on the market price of Pre-merged PhotoMedex shares which was $15.60 per-share (closing price) on December 13, 2011, the day on which the reverse acquisition became effective. This consideration transferred also included $20 million in cash, which Pre-merged PhotoMedex, used to liquidate its convertible debt, prior to the acquisition. The fair value of the assets acquired and liabilities assumed were based on management estimates and values derived from an outside independent appraisal. However, as of June 30, 2012, the Company is still in the process of assessing the acquired entity's tax positions and the amount of net loss carryforwards that are expected to be utilized in future periods based on the facts and circumstances that existed at the acquisition date. Accordingly, the deferred taxes and, therefore, the goodwill allocations might be subject to adjustments upon completion of assessment. The Company expects that the allocation will be finalized within twelve months after the merger as allowed by GAAP. Based on the provisional purchase price allocation, the following table summarizes the estimated provisional fair value amounts of the assets acquired and liabilities assumed at the date of acquisition:

Cash and cash equivalents	$	1,271
Accounts receivable		1,873
Inventories		7,136
Prepaid expenses and other current assets		639
Property and equipment		4,543
Patents and licensed technologies		13,500
Other intangible assets		12,000
Other assets		41
Deferred tax assets		27,122
Total assets acquired at fair value		68,125
Accounts payable		(6,333	)
Accrued compensation and related expenses		(1,554	)
Other accrued liabilities		(2,471	)
Deferred revenues		(556	)
Total liabilities assumed		(10,914	)
Net assets acquired	$	57,211

Schedule of Income Statement

The consolidated results of operations do not include any revenues or expenses related to the Pre-merged PhotoMedex business on or prior to December 13, 2011, the consummation date of the reverse acquisition. The Company's unaudited pro-forma results for the three and six months ended June 30, 2012 and 2011 summarize the combined results of the Radiancy and PhotoMedex in the following table, assuming the reverse acquisition had occurred on January 1, 2011 and after giving effect to the reverse acquisition adjustments, including amortization of the tangible and intangible assets which were acquired in the transaction:

	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
	(unaudited)			(unaudited)
Net revenues	$	42,253		$	85,216
Net income		(12,265	)		(5,926	)
Net income per share:
Basic	$	(0.93	)	$	(0.45	)
Diluted	$	(0.93	)	$	(0.45	)
Shares used in calculating net income per share:
Basic		13,135,327			13,139,090
Diluted		13,135,327			13,139,090

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Business Segment and Geographic Data

6 Months Ended

Jun. 30, 2012

Business Segment and Geographic Data [Abstract]

Business Segment and Geographic Data

Note 13

Business Segments and Geographic Data:

Effective December 13, 2011, the Company reorganized its business into three operating units to better align its organization based upon the Company's management structure, products and services offered, markets served and types of customers, as follows: The Consumer segment derives its revenues from the design, development, manufacturing and selling of long-term hair reduction and acne consumer products. The Physician Recurring segment derives its revenues from the XTRAC procedures performed by dermatologists, the sales of skincare products, the sales of surgical disposables and accessories to hospitals and surgery centers and on the repair, maintenance and replacement parts on our various products. The Professional segment, in comparison, generates revenues from the sale of equipment, such as lasers, medical and aesthetic light and heat-based products and LED products. Management reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance.

Unallocated operating expenses include costs that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.

The following tables reflect results of operations from our business segments for the periods indicated below:

Three Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	50,464		$	5,274		$	3,168		$	58,906
Costs of revenues		8,169			2,605			1,581			12,355
Gross profit		42,295			2,669			1,587			46,551
Gross profit %		83.8	%		50.6	%		50.1	%		79.0	%
Allocated operating expenses:
Engineering and product development		240			275			245			760
Selling and marketing expenses		27,544			2,421			1,103			31,068
Unallocated operating expenses		-			-			-			9,243
		27,784			2,696			1,348			41,071
Income (loss) from operations		14,511			(27	)		239			5,480
Interest  and other financing income (expense), net		-			-			-			(401	)
Net income (loss) before taxes	$	14,511		$	( 27	)	$	239		$	5,079

Three Months Ended June 30, 2011

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	32,459		$	-		$	1,388		$	33,847
Costs of revenues		5,206			-			484			5,690
Gross profit		27,253			-			904			28,157
Gross profit %		84.0	%		-	%		65.1	%		83.2	%
Allocated operating expenses:
Engineering and product development		207			-			42			249
Selling and marketing expenses		14,853			-			537			15,390
Unallocated operating expenses		-			-			-			28,926
		15,060			-			579			44,565
Income (loss) from operations		12,193			-			325			(16,408	)
Interest and other financing income (expense), net		-			-			-			161
Net income (loss) before taxes	$	12,193		$	-		$	325		$	(16,247	)

Six Months Ended June 30, 2012

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	92,665		$	10,347		$	6,167		$	109,179
Costs of revenues		14,941			5,284			3,364			23,589
Gross profit		77,724			5,063			2,803			85,590
Gross profit %		83.9	%		48.9	%		45.4	%		78.4	%
Allocated operating expenses:
Engineering and product development		477			585			456			1,518
Selling and marketing expenses		49,693			4,950			2,260			56,903
Unallocated operating expenses		-			-			-			16,362
		50,170			5,535			2,716			74,783
Income (loss) from operations		27,554			(472	)		87			10,807
Interest  and other financing income (expense), net		-			-			-			(631	)
Net income (loss) before taxes	$	27,554		$	( 472	)	$	87		$	10,176

Six Months Ended June 30, 2011

	CONSUMER			PHYSICIAN RECURRING			PROFESSIONAL			TOTAL
Revenues	$	66,086		$	-		$	2,502		$	68,588
Costs of revenues		11,002			-			910			11,912
Gross profit		55,084			-			1,592			56,676
Gross profit %		83.4	%		-	%		63.6	%		82.6	%
Allocated operating expenses:
Engineering and product development		339			-			80			419
Selling and marketing expenses		29,058			-			979			30,037
Unallocated operating expenses		-			-			-			31,739
		29,397			-			1,059			62,195
Income (loss) from operations		25,687			-			533			(5,519	)
Interest and other financing income (expense), net		-			-			-			192
Net income (loss) before taxes	$	25,687		$	-		$	533		$	(5,327	)

For the three and six months ended June 30, 2012 and 2011, net revenues by geographic area were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
North America 1	$	43,948	$	23,312	$	82,636	$	47,848
Asia Pacific 2		8,466		8,174		13,773		16,812
Europe (including Israel)		6,245		1,685		11,453		2,983
South America		247		676		1,317		945
	$	58,906	$	33,847	$	109,179	$	68,588
1 United States	$	37,470	$	19,980	$	70,093	$	41,936
2  Japan	$	6,847	$	7,510	$	10,174	$	15,556

For the three and six months ended June 30, 2012 and 2011, long-lived assets by geographic area were as follows:

	Three Months Ended June 30,
	2012		2011
North America	$	4,531	$	1
Asia Pacific		-		-
Europe (including Israel)		813		718
South America		-		-
	$	5,344	$	719

The Company discusses segmental details in its Management Discussion and Analysis found elsewhere in this Quarterly Report on Form 10-Q.

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Long-term Debt

6 Months Ended

Jun. 30, 2012

Long-term Debt [Abstract]

Long-term Debt

Note 9

Long-term Debt:

In the following table is a summary of the Company's long-term debt, which the Company assumed in the reverse merger on December 13, 2011.

	June 30, 2012			December 31, 2011
	(unaudited)
Term note, net of unamortized debt discount of $0 and $302, respectively	$	-		$	1,698
Capital lease obligations		24			30
Sub-total		24			1,728
Less: current portion		(24	)		(1,720	)
Total long-term debt	$	-		$	8

Term Note

On March 19, 2010, Pre-merged PhotoMedex entered a Term Loan and Security Agreement with Clutterbuck Funds for a principal amount of $2.5 million, with interest accruing at a rate of 12% per annum. On March 28, 2011, Clutterbuck Funds agreed to extend the maturity date of the secured term loan to December 1, 2012. Starting in August 2011, Pre-merged PhotoMedex began monthly installments of principal such that the final payment at maturity will be $75,000. The collateral securing the first-position security interest of Clutterbuck Funds remained in place. On June 11, 2012, the Company paid off this loan and was relieved of all related obligations.

Capital Leases

The obligation under the Company's capital lease is at a fixed interest rate and is collateralized by the related property and equipment (see Note 4, Property and Equipment).

The following table summarizes the future minimum payments that the Company expects to make for long-term debt and capital lease obligations:

Six months of 2012	$	15
2013		10
Total minimum payments		25
Less: interest		(1	)
Present value of total minimum obligations	$	24

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Accrued Compensation and Related Expenses

6 Months Ended

Jun. 30, 2012

Accrued Compensation and Related Expenses [Abstract]

Accrued Compensation and Related Expenses

Note 7

Accrued Compensation and related expenses:

	June 30, 2012		December 31, 2011
	(unaudited)
Accrued payroll and related taxes	$	901	$	1,260
Accrued vacation		401		251
Accrued commissions and bonus		1,560		2,289
Total accrued compensation and related expense	$	2,862	$	3,800

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Other Accrued Liabilities

6 Months Ended

Jun. 30, 2012

Other Accrued Liabilities [Abstract]

Other Accrued Liabilities

Note 8

Other Accrued Liabilities:

	June 30, 2012		December 31, 2011
	(unaudited)
Accrued warranty, current	$	1,378	$	1,157
Accrued taxes, including liability for unrecognized tax benefit, see Note 11		2,391		5,101
Accrued sales returns (1)		11,789		6,143
Other accrued liabilities		4,351		2,588
Total other accrued liabilities	$	19,909	$	14,989

(1)   The activity in the sales returns liability account was as follows:

	Six Months Ended June 30,
	2012			2011
	(unaudited)			(unaudited)
Balance at beginning of year	$	6,143		$	3,406
Additions that reduce net sales		22,224			14,843
Deductions from reserves		(16,578	)		(11,305	)
Balance at end of period	$	11,789		$	6,944

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 10

Commitments and Contingencies:

During the six month period ended June 30, 2012, the Company has entered into a settlement agreement with TRIA Beauty, Inc. ("TRIA"). All matters of pending litigation between Radiancy and TRIA have been dismissed with prejudice, including: (i) TRIA Beauty, Inc. v. Radiancy, Inc., Case No. CV-10-5030 (NJV) USDC District of Northern California; and (ii) Radiancy, Inc. v. TRIA Beauty, Inc, Index No. 650025/2011 Supreme Court of the State of New York. The terms of the settlement agreement were reduced to a written agreement dated July 3, 2012; such terms are confidential to the parties. The financial settlement is deemed to have no material effect on the Company's consolidated financial statements.

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Basis of Presentation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 13, 2011
Background [Abstract]
Effective date of merger			Dec. 13, 2011		Dec. 13, 2011
Common stock issued after giving effect to merger (in shares)	21,881,182		21,881,182		18,821,728	18,820,852
Common stock outstanding after giving effect to merger (in shares)	21,881,182		21,881,182		18,821,728	18,820,852
Business Acquisition [Line Items]
Number of operating units			3
Segment Reporting Information [Line Items]
Number of distribution channels			2
Period of sales deferred (in weeks)			2W
Activity in warranty accrual [Roll Forward]
Accrual at beginning of year			$ 1,661	$ 260	$ 260
Additions charged to warranty expense			919	202
Expiring warranties			(218)	0
Claims satisfied			(658)	(128)
Total	1,704	334	1,704	334	1,661
Less: current portion	(1,378)	(334)	(1,378)	(334)	(1,157)
Accrued warranty	$ 326	$ 0	$ 326	$ 0
Weighted average number of common and common equivalent shares outstanding [Abstract]
Basic number of common shares outstanding (in shares)	20,547,244	10,256,364	19,454,775	10,256,364
Dilutive effect of stock options and warrants (in shares)	487,570	0	487,570	0
Diluted number of common and common stock equivalent shares outstanding (in shares)	21,034,814	10,256,364	19,942,345	10,256,364
Common stock options and warrants excluded from computation of diluted earnings per share (in shares)	1,975,530		1,975,530
Maximum [Member]
Warranty on Product Sales [Line Items]
Period of warranty on product sales			2 years
Extended period of warranty on domestic sale of laser equipment			4 years
Minimum [Member]
Warranty on Product Sales [Line Items]
Period of warranty on product sales			1 year
Extended period of warranty on domestic sale of laser equipment			3 years
PHYSICIAN RECURRING [Member]
Segment Reporting Information [Line Items]
Number of identified product lines			2
PhotoMedex, Inc. [Member]
Business Acquisition [Line Items]
Percentage of ownership on reverse merger (in hundredths)					20.00%
Radiancy, Inc. [Member]
Business Acquisition [Line Items]
Percentage of ownership on reverse merger (in hundredths)					80.00%

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

Basis of Presentation:

The accompanying condensed consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 ("fiscal 2011"). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") related to interim financial statements. As permitted under those rules, certain information and footnote disclosures normally required or included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are considered necessary to present fairly the results of the Company's financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature. Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.

The results for the three months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012 or for any other interim period or for any future period.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements include the results from the entities defined as Pre-merged PhotoMedex from December 14, 2011 (the day following the closing date of the reverse acquisition) forward. As such there are no corresponding activities for the three and six months ended June 30, 2011.

Revenue Recognition

Revenue Recognition

The Company recognizes revenues from product sales when the following four criteria have been met: (i) the product has been delivered and the Company has no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is reasonably assured. Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.

The Company ships most of its products FOB shipping point, although from time to time certain customers, for example governmental customers, will insist upon FOB destination. Among the factors the Company takes into account when determining the proper time at which to recognize revenue are when title to the goods transfers and when the risk of loss transfers. Shipments to distributors or physicians that do not fully satisfy the collection criteria are recognized when invoiced amounts are fully paid or fully assured.

For revenue arrangements with multiple deliverables within a single, contractually binding arrangement (usually sales of products with separately priced extended warranty), each element of the contract is accounted for as a separate unit of accounting when it provides the customer value on a stand-alone basis and there is objective evidence of the fair value of the related unit.

With respect to sales arrangements under which the buyer has a right to return the related product, revenue is recognized only if all the following are met: the price is fixed or determinable at the date of sale; the buyer has paid, or is obligated to pay and the obligation is not contingent on resale of the product; the buyer's obligation would not be changed in the event of theft or physical destruction or damage of the product; the buyer has economic substance; the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and the amount of future returns can be reasonably estimated.

The Company provides a provision for product returns based on the experience with historical sales returns, in accordance with ASC Topic 605-15 with respect to sales of product when a right of return exists. Reported revenues are shown net of the returns provision. Such allowance for sales returns is included in Other Accrued Liabilities. (See Note 8).

Deferred revenue includes amounts received with respect to extended warranty maintenance, repairs and other billable services and amounts not yet recognized as revenues. Revenues with respect to such activities are recognized over the duration of the warranty period, the service period or when service is provided, as applicable to each service.

The Company has two distribution channels for its phototherapy treatment equipment. The Company either (i) sells its lasers through a distributor or directly to a physician or (ii) places its lasers in a physician's office (at no charge to the physician) and generally charges the physician a fee for an agreed upon number of treatments. In some cases, the Company and the customer stipulate to a quarterly or other periodic target of procedures to be performed, and accordingly revenue is recognized ratably over the period.

When the Company places a laser in a physician's office, it generally recognizes service revenue based on the number of patient treatments performed, or purchased under a periodic commitment, by the physician. Treatments to be performed through random laser-access codes that are sold to physicians free of a periodic commitment, but not yet used, are deferred and recognized as a liability until the physician performs the treatment. Unused treatments remain an obligation of the Company because the treatments can only be performed on Company-owned equipment. Once the treatments are delivered to a patient, this obligation has been satisfied.

The Company defers substantially all sales of treatment codes ordered by and delivered to its customers within the last two weeks of the period in determining the amount of procedures performed by its physician-customers. Management believes this approach closely approximates the actual amount of unused treatments that existed at the end of a period.

Revenue from maintenance service agreements is deferred and recognized on a straight-line basis over the term of the agreements. Revenue from billable services, including repair activity, is recognized when the service is provided.

Fair Value Measurements

Fair Value Measurements

The Company measures and discloses fair value in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification 820, Fair Value Measurements and Disclosures ("ASC Topic 820"). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 - unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 - pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 - pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. The fair values of notes payable and long-term debt are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity. The estimated fair values of notes payable and long-term debt approximate the carrying values. The fair value of the amounts funded in insurance policies in respect of employee liability for employee rights upon retirement is usually identical or close to their carrying value. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.

Accrued Warranty Costs

Accrued Warranty Costs

The Company offers a standard warranty on product sales generally for a one to two-year period. In the case of domestic sales of XTRAC lasers, however, the Company has offered longer warranty periods, ranging from three to four years, in order to meet competition or meet customer demands. The Company provides for the estimated future warranty claims on the date the product is sold. Total accrued warranty is included in Other Accrued Liabilities on the balance sheet. The activity in the warranty accrual during the six months ended June 30, 2012 and 2011 is summarized as follows:

	June 30,
	2012			2011
	(unaudited)			(unaudited)
Accrual at beginning of year	$	1,661		$	260
Additions charged to warranty expense		919			202
Expiring warranties		(218	)		(-	)
Claims satisfied		(658	)		(128	)
Total		1,704			334
Less: current portion		(1,378	)		(334	)
Accrued warranty	$	326		$	-

For extended warranty on the consumer products, see Revenue Recognition above.

Earnings Per Share

Earnings Per Share

Due to the reverse merger on December 13, 2011, the earnings per share for each period before the acquisition date presented in these financial statements were computed based on Radiancy's historical weighted-average number of shares outstanding, multiplied by the exchange ratio that was established in the reverse merger. Therefore, unless otherwise noted, all share and per-share amounts for all periods before the acquisition date have been retroactively adjusted to give effect to the exchange ratio.

Basic and diluted earnings per common share were calculated using the following weighted-average shares outstanding:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding		20,547,244		10,256,364		19,454,775		10,256,364
Dilutive effect of stock options and warrants		487,570		-		487,570		-
Diluted number of common and common stock equivalent shares outstanding		21,034,814		10,256,364		19,942,345		10,256,364

Diluted earnings per share for the three and six months ended June 30, 2012, exclude the impact of common stock options and warrants, totaling 1,975,530 shares, as the effect of their inclusion would be anti-dilutive.

Adoption of New Accounting Standards

Adoption of New Accounting Standards

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-04, which amends Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures. This ASU clarifies among other things, the FASB's intent with respect to the application of existing fair value requirements, including those related to highest and best use concepts, and also expands the disclosure requirements for fair value measurements categorized within Level 3 of the fair value hierarchy. This ASU clarifies that a reporting entity should disclose quantitative information about significant unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. Additionally, this ASU expands the disclosures for fair value measurements categorized within Level 3 where a reporting entity is required to include a description of the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. Additional disclosure is also required for any transfers between Level 1 and Level 2 of the fair value hierarchy of fair value measurements on a gross basis as well as additional disclosure of the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value. For many of the requirements, the FASB does not intend for this ASU to result in a change in the application of the requirements in FASB ASC Topic 820. This update became effective during interim and annual periods beginning after December 15, 2011. 

In June 2011, the FASB issued ASU No. 2011-05, which amends FASB ASC Topic 220, Comprehensive Income. This ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update became effective during interim and annual periods beginning after December 15, 2011. 

In September 2011, the FASB issued ASU No. 2011-08, which amends FASB ASC Topic 350, Intangibles-Goodwill and Other. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This update became effective during interim and annual periods beginning after December 15, 2011. 

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Patents and Licensed Technologies, net (Tables)

6 Months Ended

Jun. 30, 2012

Finite-Lived Intangible Assets [Line Items]

Schedule of Patents and Licensed Technologies

Set forth below is a detailed listing of other definite-lived intangible assets:

	June 30, 2012							December 31, 2011
	(unaudited)
	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Trademarks	$	5,700	$	(309	)	$	5,391	$	5,700	$	(24	)	$	5,676
Customer Relationships	$	6,300	$	(341	)	$	5,959	$	6,300	$	(26	)	$	6,274
	$	12,000	$	(650	)	$	11,350	$	12,000	$	(50	)	$	11,950

Amortization expense for amortizable patents and licensed technologies

Estimated amortization expense for amortizable patents and licensed technologies assets for the next five years is as follows:

Last six months of 2012	$	1,046
2013		2,035
2014		2,035
2015		2,028
2016		1,980
Thereafter		4,389
Total	$	13,513

Patents [Member]

Finite-Lived Intangible Assets [Line Items]

Schedule of Patents and Licensed Technologies

Patents and Licensed Technologies, net:

	June 30, 2012									December 31, 2011
	(unaudited)
	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Patents	$	15,217	$	(1,704	)	$	13,513	$	15,124	$	(689	)	$	14,435

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Other Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011	Dec. 31, 2011
Other Accrued Liabilities [Abstract]
Accrued warranty, current	$ 1,378		$ 334	$ 1,157
Accrued taxes, including liability for unrecognized tax benefit, see Note 11	2,391			5,101
Accrued sales return	11,789	[1]	6,944
Other accrued liabilities	4,351			2,588
Total other accrued liabilities	19,909			14,989
Balance at beginning of year	6,143	[1]	3,406
Additions that reduce net sales	22,224		14,843
Deductions from reserves	(16,578)		(11,305)
Balance at end of period	$ 11,789	[1]	$ 6,944

[1] The activity in the sales returns liability account was as follows: Balance at the beginning of the year S 6,143 and 3,406 for six months ended June 30, 2012 and 2011 respectively. Additions that reduce net sales $ 22,224 and 14,843 for six months ended June 30, 2012 and 2011 respectively. Deductions from reserves $ 16,578 and 11,305 for six months ended June 30, 2012 and 2011 respectively. Balance at the end of the period $ 11,789 and 6,944 for six months ended June 30, 2012 and 2011 respectively. All values are in thousands.

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Total
BALANCE at Dec. 31, 2011	$ 188	$ 99,325	$ (250)	$ 12,813	$ 2	$ 112,078
BALANCE (in shares) at Dec. 31, 2011	18,821,728					18,821,728
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of warrants to consultants for services	0	98	0	0	0	98
Stock-based compensation - grants of common stock	0	405	0	0	0	405
Stock-based compensation - grant of common stock (in shares)	30,000
Stock-based compensation related to stock options and restricted stock	0	2,800	0	0	0	2,800
Stock options issued to consultants for services	0	83	0	0	0	83
Issuance of common stock, net	30	37,484				37,514
Issuance of common stock, net (in shares)	3,023,432
Options exercised	1	38	0	0	0	39
Options exercised (in shares)	6,022
Other comprehensive income (loss)	0	0	0	0	(95)	(95)
Net income (loss)	0	0	0	9,070	0	9,070
BALANCE at Jun. 30, 2012	$ 219	$ 140,233	$ (250)	$ 21,883	$ (93)	$ 161,992
BALANCE (in shares) at Jun. 30, 2012	21,881,182					21,881,182

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Property and Equipment

6 Months Ended

Jun. 30, 2012

Property and Equipment [Abstract]

Property and Equipment

Note 4

Property and Equipment:

Set forth below is a detailed listing of property and equipment:

	June 30, 2012			December 31, 2011
	(unaudited)
Lasers-in-service	$	5,147		$	4,187
Equipment, computer hardware and software		3,677			3,576
Furniture and fixtures		594			529
Leasehold improvements		387			376
		9,805			8,668
Accumulated depreciation and amortization		(4,461	)		(3,344	)
Property and equipment, net	$	5,344		$	5,324

Depreciation and related amortization expense was $1,155 and $129 for the six months ended June 30, 2012 and 2011, respectively. At June 30, 2012 and December 31, 2011, net property and equipment included $70 and $61, respectively, of assets recorded under capitalized lease arrangements, of which $24 and $30 was included in current portion of long-term debt at June 30, 2012 and December 31, 2011, respectively. See Note 9, Long-Term Debt.

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Schedule of definite-lived intangible assets

Set forth below is a detailed listing of other definite-lived intangible assets:

	June 30, 2012							December 31, 2011
	(unaudited)
	Gross Amount		Accumulated Amortization			Net Book Value		Gross Amount		Accumulated Amortization			Net Book Value
Trademarks	$	5,700	$	(309	)	$	5,391	$	5,700	$	(24	)	$	5,676
Customer Relationships	$	6,300	$	(341	)	$	5,959	$	6,300	$	(26	)	$	6,274
	$	12,000	$	(650	)	$	11,350	$	12,000	$	(50	)	$	11,950

Schedule of estimated amortization expense for amortizable intangible assets

Estimated amortization expense for amortizable patents and licensed technologies assets for the next five years is as follows:

Last six months of 2012	$	1,046
2013		2,035
2014		2,035
2015		2,028
2016		1,980
Thereafter		4,389
Total	$	13,513

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Patents and Licensed Technologies, net (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization	$ (650)		$ (50)
Net Book Value	13,513		14,435
Amortization expense	600	0
Product and core technologies under purchase price allocation	12,000
Estimated amortization expense for amortizable patents and licensed technologies assets [Abstract]
Last six months of 2012	600
2013	1,200
2014	1,200
2015	1,200
2016	1,200
Thereafter	5,950
Net Book Value	13,513		14,435
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	15,217		15,124
Accumulated Amortization	(1,704)		(689)
Net Book Value	13,513		14,435
Amortization expense	1,015	55
Product and core technologies under purchase price allocation	13,500
Estimated amortization expense for amortizable patents and licensed technologies assets [Abstract]
Last six months of 2012	1,046
2013	2,035
2014	2,035
2015	2,028
2016	1,980
Thereafter	4,389
Net Book Value	$ 13,513		$ 14,435

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Significant Customer Concentration

6 Months Ended

Jun. 30, 2012

Significant Customer Concentration [Abstract]

Significant Customer Concentration

Note 14

Significant Customer Concentration:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Customer A		11	%		22	%		8	%		23	%
Customer B		9	%		11	%		7	%		11	%

No other customer was more than 10% of total company revenues for the three and six months ended June 30, 2012 and 2011.